Pakistan May Lower Key Rate for Second Time This Year: Bloomberg

By Khalid Qayum

July 24 (Bloomberg) -- Pakistan’s central bank will probably lower its benchmark interest rate for the second time this year to help boost economic growth.

State Bank of Pakistan will cut its discount rate to 12.5 percent from 14 percent, according to six of 13 economists in a Bloomberg News survey. Six expect the rate to be reduced by 1 percentage point, while one predicts a 2 percentage-point cut.

“In view of the economic slowdown, slashing interest rates is inevitable,” said Muzzammil Aslam, senior economist at JS Global Capital Ltd. in Karachi. “If economic activity doesn’t pick up now, it will be difficult for the government to meet its macro targets for this year.”

The Pakistan Peoples Party-led government is betting lower interest rates will revive the confidence of investors, who have shied away from the country because of poor security, militancy in the northwest region and a crumbling economy. The South Asian nation was forced to seek a $7.6 billion bailout from the International Monetary Fund in November and may require an additional $4 billion from the Washington-based lender.

Governor Salim Raza is due to release the central bank’s quarterly monetary policy statement on August 15 in Karachi, after the announcement was today delayed from the previously scheduled date of July 25. Raza in April cut the benchmark rate one percentage point to 14 percent from a decade high.

IMF Pressure

“There must have been pressure from the IMF to wait for July inflation numbers,” said Mustafa Pasha, an economist at BMA Capital Management Ltd. in Karachi. “The IMF probably wants the central bank to be conservative in a rate cut and the central bank probably wants the IMF to first release the third loan installment.”

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