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SBP expected to trim rates - Naveed Yaseen - 04-18-2009 08:27 AM
KARACHI: Pakistan’s central bank may cautiously lower its interest rates to boost economic growth and investment as inflation is easing and foreign exchange reserves have been rebuilt after dwindling last year, analysts said.
The International Monetary Fund has said an interest rate cut now would be premature but analysts still expect at least a small cut when monetary policy for the last quarter of this (July-June) fiscal year is set on Monday.
“A good economic case can be made in current circumstances for lowering the rediscount rate by 200 to 300 basis points,” said Mohsin Khan, the economist who led IMF negotiations with Pakistan last year. “Growth is really faltering.”
Khan retired as director of the IMF’s Middle East and Central Asia Department at the end of November, immediately after concluding a $7.6bn emergency credit agreement to rescue Pakistan from a balance of payments crisis and looming default on its international debt.
The discount rate was kept unchanged at 15 per cent when monetary policy was set in January following 500 basis points of tightening in 2008.
While analysts see room for a cut, IMF objections may persuade the central bank to hold off or make only a symbolic adjustment, they said. “The IMF does not seem to be onboard for an immediate cut in interest rates as inflation is still at elevated levels,” said Asif Qureshi, head of research at Invisor Securities Ltd.
The IMF said this week a rate cut now would be premature, but the option could be revisited at a later stage. “If you believe that inflation will be at 16 per cent by the end of June this year, then lowering interest rates now seems to be the right policy,” Khan said. “A cut in the rediscount rate and the Treasury bills cut-off rates by 200 basis points or even more wouldn’t have much of an effect on the inflation path this year and it may have some positive effects on investment and growth,” he said.
http://www.thenews.com.pk/daily_detail.asp?id=172984