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Pak central bank cuts interest rates to boost growth
23 May '16
2 min read
The State Bank of Pakistan (SBP) has cut its key policy rate by 25 basis points to 5.75 per cent which is lowest in 40 years, to boost the economy after a dismal performance by the agriculture sector.
Pakistan's GDP grew only 4.7 per cent against the target of 5.5 per cent after the country missed the economic growth target for the current financial year largely due to a dismal performance by the agriculture sector.
In its monetary policy statement on Saturday, SBP slashed its policy interest rate from six per cent to 5.75 per cent, lowest in 40 years, as per its assessment that inflation would remain below the target set for the 2016 financial year.
The policy rate was previously cut by 50 basis points to six per cent in September last year.
Financial analysts, trade and industry experts said the cut in policy rate cannot alone bring an improvement in the country's economic growth and insisted the government also has to take adequate measures to encourage and boost the manufacturing sector.
The SBP said the country would not achieve its GDP growth target of 5.5 per cent for the current financial year which ends on June 30, but it would exceed its last year's figure of 4.2 per cent.
The losses from cotton and rice crops were major reasons for the slow economic growth but an increase in industrial activities and services sector would salvage some of the lost momentum of GDP growth, the central bank said. But it cautioned that uncertainty might arise if there was an adverse change in oil prices or workers' remittances.
Inflation was likely to climb in the next financial year, as rising global oil prices, new taxes and increase in electricity and gas tariffs would put upward pressure on CPI inflation.
The SBP said that recovery in large-scale manufacturing, which grew by 4.7 per cent during July-March FY16 compared to 2.8 per cent in Jul-Mar FY15, was expected to continue further on account of improving energy and security conditions. (SH)
Pakistan's GDP grew only 4.7 per cent against the target of 5.5 per cent after the country missed the economic growth target for the current financial year largely due to a dismal performance by the agriculture sector.
In its monetary policy statement on Saturday, SBP slashed its policy interest rate from six per cent to 5.75 per cent, lowest in 40 years, as per its assessment that inflation would remain below the target set for the 2016 financial year.
The policy rate was previously cut by 50 basis points to six per cent in September last year.
Financial analysts, trade and industry experts said the cut in policy rate cannot alone bring an improvement in the country's economic growth and insisted the government also has to take adequate measures to encourage and boost the manufacturing sector.
The SBP said the country would not achieve its GDP growth target of 5.5 per cent for the current financial year which ends on June 30, but it would exceed its last year's figure of 4.2 per cent.
The losses from cotton and rice crops were major reasons for the slow economic growth but an increase in industrial activities and services sector would salvage some of the lost momentum of GDP growth, the central bank said. But it cautioned that uncertainty might arise if there was an adverse change in oil prices or workers' remittances.
Inflation was likely to climb in the next financial year, as rising global oil prices, new taxes and increase in electricity and gas tariffs would put upward pressure on CPI inflation.
The SBP said that recovery in large-scale manufacturing, which grew by 4.7 per cent during July-March FY16 compared to 2.8 per cent in Jul-Mar FY15, was expected to continue further on account of improving energy and security conditions. (SH)
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