The State Bank of Pakistan (SBP) cut its key discount rate to 8.5 per cent from 9.5 per cent on Saturday, in line with analyst expectations and citing lower inflationary pressure due to falling global oil prices.
SBP Governor Ashraf Wathra said the new rate would be in place for two months until the next central bank meeting to discuss further policy.
“Keeping in view the declining inflation due to falling international oil prices, (the) central bank has decided to lower the discount rate,” Wathra told a press conference.
Business leaders had earlier called on the central bank to ease monetary policy to encourage private sector investment and accelerate economic growth.
The government of Prime Minister Nawaz Sharif, which came to power in 2013, is under pressure to do more to revive the economy, solve crippling power shortages and create favourable conditions for badly needed foreign investment.
The International Monetary Fund saved Pakistan from possible default in 2013 by agreeing to lend it $6.8 billion over three years.
The cash is being doled out in increments and could stop if Pakistan fails to institute changes such as cracking down on tax evasion and privatising loss-making state companies.
Falling oil prices have prompted a number of central banks to ease monetary policy.
Addressing the press conference, Wathra said that fiscal deficit remained under control while remittances increased which positively affected the foreign exchange reserves. He said that better supply helped keeping the inflation and prices of daily use commodities down.
INFLATION DOWN:
Wathra said that inflation rate remained at 4.3 per cent during the month of December and will fall further down.
“Inflation rate at the end of the fiscal year is expected to be 5.5 per cent”, he said, adding that the SBP had estimated the rate to remain at 8.5 per cent but reduction in global oil prices helped the national economy and also in improving exports. Wathra said that reduction in the prices of commodities may cause increase in demand.
The SBP chief said that instalments by International Monetary Fund (IMF) and Sukook bonds helped improve the foreign exchange reserves. However he said that failure in achieving the estimated amount from privatisation and lesser FBR revenue collection due to reduction in POL prices would adversely affect the accounts.
He stressed that reforms should be top priority to attract foreign investment, adding that fiscal deficit remained under control despite increase in interest-based payments. He said that the SBP loans to government remained lower than the targets while increase in defence expenditure will increase the national expenditure. He said that these things may cause problems in achieving the targets set by IMF.
He said amid improving macro economic conditions, business sentiments are likely to strengthen. Availability of cheap raw material, low input cost, and healthy construction activity, as indicated by higher cement sale and steel production, are expected to benefit commodity producing sector.
On the other hand, with limited impact of floods on rice and sugarcane crops and with incentives for Rabi crops in place, the prospects for a better agriculture sector performance in this fiscal year is high. In this backdrop, the real GDP is therefore expected to maintain the growth momentum achieved in the last year into FY15 as well, he added.
