(Bloomberg) -- Pakistan cut its benchmark interest rate to the lowest in more than two years as easing inflation provides room for the central bank to boost growth.
The State Bank of Pakistan lowered the target rate by 200 basis points to 13%, the central bank said in a statement Monday. All the 41 economists surveyed by Bloomberg predicted the move, with 26 forecasting the exact measure. Interest rate has dropped to the lowest since April 2022.
“The overall situation has significantly improved on the economic front,” State Bank of Pakistan Governor Jameel Ahmad said at a briefing after the decision. The central bank expects inflation to stabilize within the target range of 5%–7% in the next 12 months, said Ahmad.
Pakistan’s inflation eased to the lowest in more than six years in November, providing space to the central bank to loosen monetary policy further. The central bank has cut its benchmark rate by 900 basis points since June in five straight meetings.
The monetary policy committee “assessed that its approach of measured policy rate cuts is keeping inflationary and external account pressures in check, while supporting economic growth on a sustainable basis,” it said in a statement. Consumer prices are expected to average substantially below the earlier forecast range of 11.5%–13.5% for the fiscal year ending June, said the statement.
Bloomberg Economics expects the central bank to cut borrowing costs further by 100 basis points to 12% in the next quarter before holding rate for the rest of the year.
The South Asian nation’s economy is turning a corner, with a $7 billion loan from the International Monetary Fund and higher remittances helping boost the foreign exchange reserves. The forex stockpile rose to $12.05 billion as of Dec. 6, the highest level since March 2022, and is expected to increase by $1 billion until June despite debt repayments, according to the central bank.
Pakistan is scheduled to repay about $5 billion that will be met without any pressures, the governor said. The nation’s rupee has gained 2% this year and is among the best-performing emerging-market currencies.
Pakistan has committed to achieve a 2% primary surplus target for the fiscal year with the IMF. That will be challenging to achieve and there is a need for additional measures to meet the revenue target, said the central bank.
(Updates with details from analyst briefing in third paragraph onward)
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