Pakistan’s Finance Minister Signals Potential Rate Cut by State Bank

Finance Minister Muhammad Aurangzeb expressed optimism about a potential reduction in the State Bank of Pakistan’s (SBP) key policy rate aligned with inflation trends.

This expectation aligns with a Reuters poll indicating that the SBP will likely cut rates by 100 basis points next week after maintaining a 22% rate through seven meetings.

Aurangzeb credited stable foreign exchange to administrative actions and structural reforms at the Pak-China Business Forum in Shenzhen.

He highlighted a reduction in inflation to just over 11%, surpassing the expected 14%.

While acknowledging the central bank’s autonomy, Aurangzeb anticipated a rate reduction corresponding with inflation, citing sufficient cushion in the positive real interest rate.

Aurangzeb noted that market reactions have been favourable, marked by increased foreign investments in stocks and bonds, reflecting growing economic confidence.

He outlined a “road to market” strategy focusing on export-led growth, foreign direct investment, and accessing international capital markets, particularly emphasizing plans for Pakistan’s first panda bond in China.

Previously, Aurangzeb mentioned aiming to raise $300 million through Panda bonds, contingent on improved credit ratings.

Over 100 Pakistani businessmen joined the delegation, seeking opportunities ahead of the budget announcement.

Aurangzeb also discussed foreign reserves, stressing their quality over quantity, noting they were built without increasing debt.

The SBP is poised for a rate cut after a recent consumer price index of 11.8% in May, the lowest in 30 months, with the decision expected just before the annual budget.

Economic growth forecasts are set at 2% for the current financial year, improving to an expected 3.5% next year.

Plans include approaching the IMF for a new bailout following a short-term program that averted default.

Inflation peaked at 38% last year and has moderated to below 20% recently.