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Thursday 17th of September 2009
April 20, 2009    

Pakistan cuts interest rates for the first time in 6 years

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by Peter Charalambous

Pakistan has cut interest rates for the first time since 2002, with a 1 percent cut bringing down lending rates to 14 percent for commercial banks.

The central bank raised interest rates by 2 percent back in November, which was the fourth consecutive increase since the global economic outlook receded in 2008. However, since the economy has been growing at its slowest rate for eight years, interest rates have been cut.

The previous interest rate increases had been sanctioned by the International Monetary Fund (IMF) as a condition for a $7.6 billion (£5.1 billion) loan to Pakistan last year.

The monetary easing undertaken by the bank is a shift, although the fact that the inflation rate is falling gave the bank room to manoeuvre.

Inflation is still high with the headline inflation now coming down to just over 19 percent, the central bank has had to cut growth forecasts by half from the previous year to between 2.5 and 3.5 percent.

The cut is expected to be taken positively according to Khalid Iqbal Siddiqui, director of research at Invest & Finance Securities, as asset markets will receive the move as a signal that the bank is back in power to direct the economy.

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