Pakistan central bank expected to cut rates by 100 bps
ISLAMABAD: Pakistan’s central bank is widely expected to cut its key interest rate next week by 100 basis points after holding it at a record 22 percent for seven straight policy meetings, according to a Reuters poll of market watchers. The central bank will meet on Monday, a week after Pakistan posted its lowest consumer price index (CPI) reading in 30 months at 11.8 percent in May - lower than most projections.
The decision will come days before Pakistan’s annual budget. The median estimate in a Reuters poll of 16 analysts predicts the State Bank of Pakistan (SBP) will cut rates by 100 basis points (bps). Ten analysts are forecasting a 100 bps cut, one analyst expects a 150 bps cut, four expect a 200 bps cut. One respondent expected the bank to hold rates again. Pakistan’s Finance Minister Muhammad Aurangzeb, speaking at a business conference in China on Wednesday, said he expected rates to come down in the face of falling inflation.
Economic activity has been slow in Pakistan for the last two years as it implemented tough reforms under an International Monetary Fund (IMF) bailout in a bid to stabilize its crashing economy. GDP growth was expected to be at 2 percent in the current financial year, which ends in June, and was negative in the previous year. The government says it will target 3.5 percent this year as it expects an uptick in economic activity.
The government will formally approach the IMF for a new longer term bailout this summer after completing a short term program earlier this year that helped it avoid a default. The lender had previously stressed the importance of keeping a tight monetary policy to control inflation, which remained above 20 percent since May 2022 and hit a record high last year at 38 percent. Inflation has since slowed, and came in at below 20 percent in April and 11.8 percent in May.