Pakistan Keeps Key Interest Rate Unchanged as Inflation Steadies

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Pakistan’s central bank kept its benchmark interest rate unchanged for the first time in more than a year after inflation showed signs of steadying following a change in base period.

The target policy rate was kept steady at 13.25%, the State Bank of Pakistan said in a statement on Monday. The decision was predicted by 38 of 43 economists in a Bloomberg survey, while four saw a cut and one predicted an increase.

Key Insights

• Pakistan switched to a new base year for calculating inflation, which came in at 10.5% in August -- a modest gain from 10.3% in July. Consumer prices rose 11.6% last month when measured using the previous base period
• Governor Reza Baqir said in July that inflation will ease in the second half of 2019, prompting analysts to predict the start of an easing cycle later this year. The South Asian economy currently has the highest real rates -- that’s adjusted for inflation -- in Asia
• The central bank’s decision to stand pat on rates comes ahead of an expected meeting this week in Islamabad between officials of International Monetary Fund and Pakistan’s finance ministry to review the economy’s progress and tax collection efforts following a $6 billion loan program in July
• Pakistan is looking to stabilize the economy after suffering from a deficit blowout with the most aggressive rate hike in Asia and multiple currency devaluations since November 2017. The current account deficit narrowed by 73% to $579 million in July

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• The decision reflects “that inflation outcomes have been largely as expected,” the central bank said
• Inflation is expected to average 11%-12% in fiscal year 2020 as projected earlier, the State Bank said
• Current monetary policy stance is appropriate to bring inflation down to target range of 5%–7% over the next two years, it said
• To read the full statement, click here

--With assistance from Michelle Jamrisko, Kamran Haider and Tomoko Sato.

To contact the reporters on this story: Ismail Dilawar in Karachi at mdilawar@bloomberg.net;Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Subramaniam Sharma

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