Pakistan Cuts Interest Rate to 9.5% in December of 2012


The Central Board of Directors of SBP has decided to reduce the policy rate by 50 basis points to 9.5 percent.

The consistently low level of credit availed by the private sector together with declining foreign investments are the main factors responsible for a stagnant economy. The persistent energy shortages have already decreased the utilization of productive capacity of the economy. Resultantly, the output gap – the difference between aggregate demand and the ability of the economy to meet this demand –is now almost negligible. At the same time, availability of food supplies has been better this yearcompared to last two years. A sharply decelerating CPI inflation is a reflection of these conditions.

 
The decline in CPI inflation is considerably faster than earlier estimates. The year-on-year CPI inflation for November 2012 stands at 6.9 percent, with food inflation dropping to 5.3 percent and non-food inflation coming down to 8.1 percent. Even the core inflation measures are in single digits. This broad based deceleration in inflation is now expected to keep the average inflation for FY13 below the 9.5 percent target for the year. Therefore, the Central Board of Directors of SBP has decided to reduce the policy rate by 50 basis points to 9.5 percent with effect from 17 December 2012.

State Bank of Pakistan | Nuno Salva | nuno.salva@tradingeconomics.com
1/18/2013 1:24:38 PM