Pakistan Unexpectedly Cuts Key Rate to 10.5% as Inflation Eases
By Farhan Sharif - Aug 10, 2012 3:01 PM ET
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 percent from 12 percent, Governor Yaseen Anwar told reporters in Karachi yesterday. None of the eight economists in a Bloomberg News survey predicted the outcome. Four expected a cut to 11.5 percent, two to 11 percent and the rest no change.
Power blackouts and a slide in exports as global growth slows have pressured an economy that needs to repay billions of dollars to the International Monetary Fund. 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,” said Ahsan Amir Ali, analyst at ABL Asset Management Co. in Karachi. “But there are still many risks for economic growth. 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 percent in July, while remaining the fastest after India and Sri Lanka in a basket of 17 Asia-Pacific economies tracked by Bloomberg.
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