IMF agrees there is room to cut Pakistan’s interest rates

The International Monetary Fund (IMF) who gave Pakistan a $7.6 billion bailout have now agreed with Pakistan’s top economic policymaker that there is now scope to cut interest rates.

Shaukat Tarin, finance adviser to Pakistan’s prime minister, announced that they had successfully managed to convince the IMF that inflation is on the way down and that an agreement was reached over the measure of potentially reducing interest rates over the next few weeks and months.

It is hoped that lowering interest rates will help to reduce political tension between the Pakistan Peoples Party-led coalition government and the opposition party.

Since the emergency loan agreement in November the central bank of Pakistan increased interest rates by 2 percent to 15 percent, which was the highest rate in over 10 years, but was made under the conditions of the IMF loan.

There is now finally room for easing monetary policy because of the reduction in global commodity prices although the next central bank monetary policy review is due in April.

Despite the political unrest economic growth is expected to recover to 4 percent in 2009/2010, from just 2.5 percent in 2008 and the country’s fiscal deficit was estimated at 249 billion rupees (£2.1 billion) compared to the target of 261 billion rupees.

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