Central bank cuts interest rate by 0.5 points

Pakistan’s central bank yesterday lowered its benchmark interest rate by 0.5 percentage points to 9.5%, in the light of a fall in inflation.

Year-on-year inflation stood at 6.9% in November, the State Bank of Pakistan said in a statement, a faster fall than had been estimated. Food inflation dropped to 5.3% and non-food inflation to 8.1%.

“This broad-based deceleration in inflation is now expected to keep the average inflation for this fiscal year (ending June 30) below the 9.5% target for the year,” the SBP statement said.

The bank issued a warning about the country’s external position, saying substantial debt repayments to the International Monetary Fund had contributed to a decline in foreign exchange reserves from $10.8bn at the end of June to $8.6bn.

The Pakistani rupee has fallen by 3.3% against the dollar since June, the bank said.

It said that “stressed external position has implications for the rest of the economy”. The decline in foreign exchange reserves “is causing contraction in rupee liquidity”.

“A depreciating currency is also affecting the size of the outstanding external debt in rupee terms and thus has implications for the fiscal position.”