State Bank of Pakistan cuts key policy rate by 150 bps to 12pc

KARACHI: State Bank of Pakistan (SBP) on Saturday cut its key policy rate by 150 basis points to 12 percent for the subsequent two months, citing a decline in inflation and government borrowings, it said in a statement.

SBP said it cut its policy rate by 150 basis points as it was "taking some comfort from declining inflation and high probability of meeting the FY12 inflation target together with a need to support private sector credit and investment growth."

In September, annual consumer inflation was 10.46 percent, compared with 11.56 percent in August, and 13.77 percent in July, mainly due to a high base effect which is to last through December. Although inflation had risen month-on-month by over one percent.

However the SBP said there was a high probability that Pakistan would meet its target of average inflation at 12 percent for 2011/12 fiscal year.

This was the first monetary policy announcement after Pakistan ended its $11 billion International Monetary Fund (IMF) loan programme on Sept. 30. It is also the second rate cut in fiscal year 2011/12 (July-June).

Pakistan raised rates by 50 basis points in November 2010, and held them steady until it cut rates by 50 basis points to 13.5 percent on July 30, also exceeding analyst expectations.

The decline in government borrowing from the SBP was also one of the reasons for the rate cut, the SBP said.

According to the provisional data, the outstanding stock of government borrowings was 1,051 billion rupees ($12 billion) on September 30, lower than the agreed limit of 1,155 billion rupees ($13.22 billion) for the 2011/12 fiscal year.

Copyright Reuters, 2011