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Country Report Pakistan Product Image

Country Report Pakistan

  • ID: 2101420
  • November 2014
  • Region: Pakistan
  • 25 Pages
  • The Economist Intelligence Unit

On November 15th the State Bank of Pakistan (SBP, the central bank) cut the discount rate, its main policy interest rate, by 50 basis points to 9.5%.

The SBP justified the cut in interest rates by stating that it expected inflation to be on a declining trend over the next few months owing to lower global oil prices and an anticipated improvement in domestic food production. It also cited the slowdown in inflation in October, when the consumer price index rose by 5.8% year on year, the lowest increase since May 2013, and down from 7.7% in September. The central bank attributed the slowdown to a fall in global commodity prices, particularly for oil. The improvement in the fiscal deficit, which narrowed to the equivalent of 5.5% of GDP in the fiscal year 2013/14 (July-June), from 8.2% of GDP in the same period a year earlier, will also help to lower inflationary pressures.

The central bank also stated that it expected foreign-exchange inflows to remain on track. The positive outlook for foreign exchange is likely to have been spurred by an IMF statement earlier in November following the conclusion of discussions over the fourth and fifth reviews of the country's US$6.6bn Extended Fund Facility (EFF) loan. The IMF stated that although the government and the SBP had missed some of their performance targets, the country's reform programme remained broadly on track and that it expected the Fund's executive board to approve disbursement of the next two tranches of the EFF loan in December, totalling US$1.1bn. The IMF statement is likely to alleviate investor uncertainty over IMF support after the fifth tranche of the EFF loan, scheduled for disbursement in September, was delayed and will help the country to boost its foreign-exchange reserves.

Country Report Pakistan

Central Bank cuts policy interest rates
Impact on the forecast

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