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The rate cut has brought a sigh of relief for an otherwise disgruntled business community. The decision is better than the expectations as most of the analysts and economists were anticipating 50bps cut which was supposedly in line with IMF's directive. BR Research was also in favour of a 50bps cut. Inflation is down and is expected to remain low in the second half as well - SBP's projection of full year inflation was revised down to 4.5- 5.5 percent (annual target: 8%) while BR Research's estimates are even less than that.

The State Bank of Pakistan (SBP) Overnight Reverse Repo (Ceiling) rate has been decreased from 9.50 percent to 8.50 percent per annum. According to a circular DMMD Circular No 01 of 2015 issued after policy rate cut announcement here on Saturday, SBP Overnight Repo facility will be available at 6.00 percent per annum. This will serve as the 'Floor' for the Interest Rate corridor as announced by the above referenced circular. Hence, the Floor and Ceiling levels for the Interest Rate Corridor are 6.00 percent and 8.50 percent per annum, respectively (ie a width of 250bps).
State Bank of Pakistan reduced its policy rate by 100 basis points (one percent) to 8.5 percent on Saturday. The new rate will be effective from January 26, 2015. The Board of Directors of the SBP met in Karachi with Governor Ashraf Mahmood Wathra in chair to deliberate on the monetary aggregates of the last six months and expected inflation by end June 2015. Since inflation has been showing a downward trend and SBP expects a lower rate in CPI, ie in the range of 4.5 to 5.5 percent, instead of 8.5 percent, it decided to slash the rate in order to make money management easier in future - to lower the need of higher injection of liquidity into the banking system.
The spokesman for the Ministry of Finance here Saturday evening said that the decision about policy rate by SBP was taken at about 2:00 pm. It is important to note that it is the responsibility of the Secretary Finance to apprise the Finance Minister about the decisions of SBP Board of Directors after conclusion of its meeting. As customary, the Secretary Finance informed the Finance Minister about the decision on the policy rate after the conclusion of the SBP Board of Directors' meeting on Saturday.
Announcement of a cut in key policy rate by the Finance Minister before the State Bank of Pakistan's (SBP) formal press briefing was only a mishap, clarified Ashraf Mahmood Wathra, Governor SBP, here on Saturday. Ishaq Dar, Federal Finance Minister, during a press conference in Islamabad had already disclosed SBP's monetary policy decision hours before the Governor SBP's formal press briefing. This situation raised several questions and media persons asked Governor SBP to clarify it.
Finance Minister Ishaq Dar on Saturday said that a 100bps reduction in policy discount rate would have a positive impact on business and industry. "I appreciate their [SBP's] decision because it would fuel private sector borrowing and is an appropriate decision given the Consumer Price Index (CPI) had declined to 4 percent," Dar told media persons at a press conference.
In what equity analysts said its 'bullish' reaction, the Karachi stocks market is likely to witness a rally of 2-3 percent, or 1000 points, during the coming week, thanks to Saturday's 100 basis points rate-cut by the central bank. The regulators, brokers, analysts and investors were all praise for a "growth-oriented" monetary policy foreseeing its impact on the sentiments-driven stocks market ranging from positive to very positive.
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Index Closing Chg%
Arrow DJIA 17,652.60 0.79
Arrow Nasdaq 4,757.88 0.16
Arrow S&P 2,051.82 0.55
Arrow FTSE 6,832.83 0.53
Arrow DAX 10,649.58 2.05
Arrow CAC-40 4,640.69 1.93
Arrow Nikkei 17,511.75 1.05
Arrow H.Seng 24,850.45 1.34
Arrow Sensex 29,278.84 0.94

ICT 2014

Foreign Debt $61.805bn
Per Cap Income $1,386
GDP Growth 4.14%
Average CPI 8.6%
Trade Balance $-1.664 bln
Exports $1.966 bln
Imports $3.630 bln
WeeklyJanuary 22, 2015
Reserves $10.331 bln