Pakistan may have room for rate cuts in future: IMF

[LahoreEstate]

WASHINGTON (April 04 2009): Pakistans monetary policy stance is appropriate, but there may be scope for interest rate reductions if inflation declines further, the International Monetary Fund said on Friday. In a statement summarising its consultation with Pakistan. The IMF said the country had met performance criteria and benchmarks spelled out under a stabilisation program, but stressed that it needed more outside help and said an upcoming donor meeting would be important.

Pakistan plans to ask its allies for up to $30 billion in aid over the next 10 years at a conference in Japan this month. It received a $7.6 billion IMF loan in November to stave off a balance of payments crisis. The IMFs directors said monetary policy was appropriate and "agreed that interest rates should be kept on hold for the time being in order to avoid financial pressures and to further consolidate disinflation."

However, they also saw "some scope for lowering interest rates in the future, provided that inflation further declines and international reserves continue to strengthen." The IMF board also stressed the need to avoid central bank financing for the government. The funds staff said the rupee currency may be slightly overvalued. The IMF said Pakistans banks had weathered the financial crisis well thus far "but should be monitored carefully." Non-performing loans rose to 9.1 percent of total loans in December from 7.7 percent in June.

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