(Dec 15): Pakistan’s central bank unexpectedly cut interest rates on Monday (Dec 15), following the International Monetary Fund’s approval of another loan payment last week.
The State Bank of Pakistan reduced the target rate by 50 basis points to 10.5%, it said in a statement. Only two of the 42 economists surveyed by Bloomberg predicted the decision while the rest had expected the rate to stay unchanged.
“The surprise rate cut broadly signals that the government might consider focusing on growth going forward while continuing stabilisation,” said Shankar Talreja, an analyst at Topline Securities Pvt.
The World Bank recently estimated the economy will likely grow 3% in the year ending June, below the central bank’s previous projection of 3.25%-4.25% for the period.
The State Bank of Pakistan had kept rates unchanged for four straight policy meetings before Monday, taking a cautious stance as inflation picked up above 6%. Escalating tensions between Pakistan and Afghanistan prompted the two countries to shut their borders, disrupting trade and pushing up food costs. Widespread flooding since late August across the Punjab region also disrupted food supplies.
The central bank had already cautioned that price growth will continue to hover above its 5%-7% forecast range beyond December.
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The IMF last week approved a payout of US$1.2 billion to Pakistan as part of a financial support programme for the country. Funding from the IMF has helped the government repay its debt and bolster foreign exchange reserves. The loan programme requires Pakistan’s central bank to maintain a tight, data-driven monetary policy to ensure macroeconomic stability, according to the fund.
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