In an unexpected move, the Central Bank of Pakistan announced a rate cut by 50 bps to 10.5%. The move follows International Monetary Fund’s approval of another
loan payment last week. Defying analysts and market predictions, the State Bank of Pakistan (SBP) cut interest rates to their lowest level in almost three years. “On balance, the inflation outlook remains broadly unchanged, mainly owing to the relatively benign global commodity prices and anchored inflation expectations, amidst prudent monetary policy stance,” Pakistan's apex bank said. This created “space to reduce the policy rate to support sustainable economic growth.” Notably, an IMF staff report last week cautioned against premature policy easing in the South Asian nation, urging authorities to keep decisions data-driven to anchor expectations and rebuild external buffers. As per the World Bank, Pakistan is estimated to grow at 3% in the year ending June, below the central bank’s projection of growth being above 4% for the period. Also Read: Pakistan’s $7 Billion Bailout, IMF Tightens Grip - Imposes 11 New Conditions Pakistan’s central bank expects economic growth in the current year to come in slightly above the 30-year average, with an even stronger performance likely in the next fiscal year, a Bloomberg report cited Governor Jameel Ahmad. Market participants read the unexpected rate cut as a possible shift in policy emphasis. “The surprise rate cut broadly signals that the government might consider focusing on growth going forward while continuing stabilization,” said Shankar Talreja, an analyst at Topline Securities Pvt. Prime Minister Shehbaz Sharif welcomed the move, saying he was satisfied with the rate cut and that it would benefit businesses, according to a statement issued by the prime minister’s office after the decision. Some analysts, however, underscored the central bank’s independence in taking the call. “The central bank’s decision is independent and does not appear to be under any pressure from the government or businesses with some calling for rate cuts earlier this year,” said Iqbal Jawaid of AWT Investments Ltd. The decision also comes against the backdrop of continued support from the International Monetary Fund. The IMF last week approved a $1.2 billion payout to Pakistan under its financial support programme, which has helped the government service debt and bolster foreign exchange reserves. As part of the loan arrangement, Pakistan’s central bank is required to maintain a tight, data-driven monetary policy to ensure macroeconomic stability, according to the IMF.
