Pakistan Keeps Interest Rate Unchanged to Support Sinking Rupee

  • Interest rate at 6% as state bank sees inflation rate rising
  • Move predicted by 21 of 22 economists in a Bloomberg survey

Pakistan kept its benchmark interest rate unchanged to support the rupee, which is among Asia’s worst performing currencies this quarter.

The State Bank of Pakistan kept the target policy rate at 6 percent, Governor Ashraf Wathra said in a statement in Karachi on Saturday. The move was predicted by 21 of 22 economists in a Bloomberg survey, with one seeing a cut to 5.5 percent.

Ashraf Mahmood Wathra

Photographer: Asim Hafeez/Bloomberg

“Headline inflation is expected to reverse its declining momentum,” according to the bank’s e-mailed statement. Average inflation will still remain below the target of 6 percent for the year ending June 30, with a subdued outlook for prices for oil and other major commodities, according to the statement.

A weaker rupee risks exposing weaknesses masked by Pakistan’s record foreign-exchange reserves, leaving the nation vulnerable to a balance of payments crisis. The currency has tumbled about 1 percent this quarter, extending the year’s loss to 5 percent. Even so, it’s overvalued by as much as 20 percent, the International Monetary Fund said on Nov. 6.

“If the central bank cuts rates now, it will only put excess pressure on the rupee,” Hamza Kamal, an analyst at Shajar Capital Pakistan Pvt., said by phone before the decision. “There is an expectation that the U.S. Federal Reserve will hike up its rate in December and that will have a depreciating effect on the Pakistani rupee.”

Prime Minister Nawaz Sharif needs to gradually start paying back the IMF for a $6.6 billion loan taken in 2013 to avert a balance of payments crisis.

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