Pakistan Cut Interest Rates by a Greater-Than-Forecast 1.5 Percentage Points

Islamabad: Pakistan cut interest rates by a greater-than-forecast 1.5 percentage points, seeking to bolster faltering growth with the first reduction since 2011 after inflation slowed to a more than two-year low. The State Bank of Pakistan reduced the discount rate to 10.5 per cent from 12 per cent, Governor Yaseen Anwar told reporters in Karachi today. None of the eight economists in a Bloomberg News survey predicted the outcome. Four expected a cut to 11.5 per cent, two to 11 per cent and the rest no change. Power blackouts and a slide in exports as global growth slows have pressured an economy that needs to repay about $7.5 billion (Dh27.6 billion) to the International Monetary Fund (IMF). The nation also faces an insurgency on the Afghan border and instability from a clash between the judiciary and the government that contributed to a credit-rating downgrade by Moody’s Investors Service. “Easing commodity prices and the soft outlook for inflation made this decision likely, ” Ahsan Amir Ali, analyst at ABL Asset Management Co. In Karachi, said before the decision. “But there are still many risks for economic growth and difficult fiscal conditions ahead. The government may need to apply for a new loan from the IMF soon. ” Pakistan joins a wave of rate cuts in recent weeks from China to Brazil to Europe. Consumer price growth eased to a 31- month low of 9.6 per cent in July, while remaining the fastest after India and Sri Lanka in a basket of 17 Asia-Pacific economies tracked by Bloomberg. Risks such as the debt crisis in Europe, a key Pakistani export market, as well as a decline in foreign reserves have sapped demand for the nation’s currency, the rupee, which has weakened 8.3 per cent against the dollar in the past 12 months. Pressure on reserves Moody’s cut Pakistan’s rating deeper into junk status on July 13, citing falling reserves and political instability. The nation has to repay about $7.5 billion to the IMF from 2012 to 2015, with $1.2 billion already handed over as of June, it said. The government and the IMF are likely to agree on a new loan programme in the next few months, Mustafa Pasha, a fund manager at BMA Funds Ltd. In Karachi, said. One obstacle to the rapid provision of aid may be the need to wait for the outcome of the next general election, which is due by early 2013. The government estimates the economy probably expanded 3.7 per cent in the fiscal year ended June 2012. It has a goal of 4.3 per cent growth in the 12 months that began July 1, even as power blackouts as long as 18 hours a day hamper businesses. “The rate cut is encouraging for industry and may trigger expansion and investment plans, ” Lahore-based Inayat Ullah Niazi, chief financial officer at D. G. Khan Cement Company Ltd, said. “I hope inflation continues to cool. Source: uaecement