Pakistan May Cut Rate for Second Time This Year to Stoke Growth: Bloomberg

By Khalid Qayum and Farhan Sharif

Aug. 13 (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 by between 1 and 2 percentage points from 14 percent, according a Bloomberg News survey of 12 economists. Governor Salim Raza is due to release the central bank’s quarterly monetary policy statement on Aug. 15 in Karachi, after the announcement was delayed from the previously scheduled date of July 25.

The case for reducing rates “has been strengthened by the sharp drop in inflation,” said Asad Farid, an economist at AKD Securities Ltd. in Karachi. “It is very critical that finance costs be lowered now. If they aren’t, industry, which is already facing huge problems, will not be competitive.”

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 militancy in the northwest region and a crumbling economy. The International Monetary Fund agreed to increase a loan to Pakistan by $3.2 billion on Aug.8, after the country was forced to turn to the Washington-based lender for a $7.6 billion bailout in November.

Governor Raza in April cut the benchmark rate one percentage point to 14 percent from a decade high. Policy makers last raised borrowing costs by 2 percentage points on Nov. 12, the fourth increase in 2008, as part of conditions for the IMF loan and to curb inflation that reached a 30-year high.

Slowing Inflation

Consumer prices rose 11.17 percent in July from a year earlier, the slowest pace in 19 months. Large-scale manufacturing output fell 8.5 percent in the 11 months ended May 30, according to the statistics agency.

South Asia’s second-largest economy was forced to turn to the IMF for a rescue package to avoid defaulting on its debt, after the country’s foreign-exchange reserves shrunk 75 percent in a year to $3.5 billion and the current-account deficit widened to a record.

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