Pakistan Unexpectedly Cuts Key Rate to 5.75% to Boost Growth

  • All 22 economists surveyed had predicted no change in key rate
  • Budget for year starting July 1 to be presented on June 3

Pakistan’s central bank unexpectedly lowered its benchmark interest rate for the first time since September to boost economic growth before the government presents its budget for the new financial year.

The State Bank of Pakistan cut the target policy rate to 5.75 percent from 6 percent, it said Saturday in an e-mailed statement in Karachi. All 22 economists surveyed by Bloomberg had predicted no change.

“It seems to be a populist decision before the budget,” Saad Khan, economist at IGI Finex Securities Ltd., said by phone. “They are talking about rising inflation but still decided to cut it. It doesn’t really make any sense to me.”

Macroeconomic conditions continue to improve and inflation, despite a steady increase, should remain below the annual average target of 6 percent, the central bank said in the statement. Consumer prices rose 4.2 percent in April, the fastest pace since December 2014. “Inflation is likely to attain a higher plateau” in the next fiscal year, according to the statement.

Prime Minister Nawaz Sharif, who lowered Pakistan’s growth forecast for the year through June 30 to 5 percent from 5.5 percent, is seeking to increase the pace to 6 percent in next year. His administration will present its budget on June 3 and an International Monetary Fund program is reaching its close with the final review in August.

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