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Pakistan Slashes Basic Interest Rate

by AFP
Farooq Naeem—AFP

Farooq Naeem—AFP

State Bank cuts interest rate to 9.5 percent on basis of improving economic indicators.

Pakistan on Saturday slashed its primary interest rate by half a percentage point on the back of receding inflation, improving economic indicators at home and sustainable cuts in commodities prices on international markets.

The State Bank of Pakistan cut the basic interest rates from 10 percent to 9.5 percent. “The State Bank of Pakistan has decided to reduce the policy rate by 50 bps [basis points] to 9.5 percent,” the bank announced in a statement.

Pakistan last week almost qualified for the release of a $1.1 billion installment from an International Monetary Fund (IMF) facility despite political turmoil and recent floods. After two weeks of talks with finance minister Ishaq Dar and officials in Dubai last week, the had said it was encouraged by the strong fiscal performance achieved during the year 2013-14.

The IMF mission will submit its report to the IMF Executive Board in December to conclude two more reviews, after which $1.1 billion will be made available to Pakistan upon board approval. The IMF granted an extended fund facility to cash-strapped Pakistan in September 2013 on the condition that it carry out extensive economic reforms especially in energy and taxation sectors.

“Limited impact of floods and a favorable trend in global commodity prices are the major highlights of the post-September monetary policy decision,” the central bank observed. Untamed inflation, which in previous years remained in double digits, came down to 5.8 percent, a 17-month low, raising investors’ hopes that the central bank would review the interest rates downward.

“Indeed, CPI inflation [year-on-year] in October 2014 has come down sharply to 5.8 percent,” said the bank, explaining the reduction in the interest rate.

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