Further Cuts On The Way

The State Bank of Pakistan (SBP) cut its policy rate by 50bps to 12.50% on November 25. Pakistan's CPI inflation rate fell to a 22-month low in October of 8.9% y-o-y, compared to 10.1% in September. Inflation has fallen substantially over the past year, from a 30-year peak of 25.3% y-o-y in August 2008. Pakistan's economic growth has slumped due to its militant insurgency and the global economic crisis. We forecast growth of a mere 2.0% this year, compared to the 5.9% average yearly growth witnessed in the years 2002 to 2008. We therefore expect the SBP to continue cutting rates in an attempt to rejuvenate the faltering Pakistani economy. We forecast that the policy rate will fall by a further 250bps to 10.00% by June 2010.

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