SBP to slash discount rate in new monetary policy

The State Bank of Pakistan will announce monetary policy on July 25, 2009 and analysts say that there will be further cut in interest rate as the inflation is constantly on the decline. The central bank would issue Monetary Policy Statement (MPS) for the July-September quarter on 25th of this month, said Syed Wasimuddin, chief spokesman of the SBP. Wasim said due to quick changes in the economic indicators, the SBP had announced that MPS would be released on quarterly basis since January this year instead of six months and the next policy was due this month. Analysts expect further cut in the interest rate as positive impacts of tight monetary policy have already been witnessed on the economy with the CPI inflation declining to 13.1 percent in June. In the last MPS, citing positive inflation outlook, the SBP eased its monetary policy to provide some relief to the local industry, which was not willing to get new loans due to high interest rates. On April 20, the central bank easing its monetary policy for the first time in 22 months had slashed key interest rate by 100 basis points to 14 percent for April-June period. Positive inflation outlook and a massive cut in the private credit had also compelled the central bank to ease the policy to improve the business climate. At present, the CPI inflation has further reduced by some 6 percent during the last quarter (April-June) to 13.13 percent by June-end from 19.1 percent in March this year. Therefore, economists and analysts are confident that the SBP would announce a massive cut in the interest rate in upcoming monetary policy. The SBP would continue its previous stance and we are expecting 100-150 basis points cut in interest rate, said Muzamil Aslam an economist at JS Global. He added that the new policy rate for July-September would be 12.5 percent. He said the countrys foreign exchange reserves have already crossed 12 billion dollars mark and the CPI inflation has declined sharply, while current account and trade deficit are also under control. These positive indicators would support our outlook, he added.