SBP brings down policy rate to 9.5 pc

KARACHI: The State Bank of Pakistan (SBP) has decided to reduce the policy rate by 50 bps to 9.5 percent.

The decision was taken by the Central Board of Directors of SBP at its meeting held under the chairmanship of Governor Ashraf Mahmood Wathra in Karachi Saturday.

SBP said limited impact of floods and a favorable trend in global commodity prices are the major highlights of the post-September monetary policy decision.

Indeed CPI inflation YoY in October 2014 has come down sharply to 5 8 percent. This decline is explained by smooth food supplies which contained the price of perishable items falling administered prices which incorporate the fall in international commodity prices especially oil low inflation expectations as witnessed by IBA SBP consumer confidence surveys and a significant base effect.

These developments bode well for the outlook of other macroeconomic variables in general. Given its recent downward trend the likelihood for inflation to end the current fiscal year on a lower plateau is high.

But there are risks First downward trend over the medium to long term remains to be seen because it is based on volatile prices of perishable items and oil.

Second, other risks identified in the previous statement such as cut in subsidy to electricity and levying of Gas Infrastructure Development Cess still hold and if materialized can alter the inflation outlook on a higher side.

Third underlying inflationary pressures on core inflation remain. The current low oil price could salvage some of the lost growth momentum.