October 01, 2024 (MLN): Pakistan’s real interest rate has jumped to a record 10.6% following the release of the September inflation figure, which showed that inflation slowed to the lowest level in almost four years.
Pakistan Bureau of Statistics (PBS) reported today that the Consumer Price Index (CPI) for September clocked in at 6.9%, the lowest reading since January 2021.
Moreover, the figure reported was significantly lower than the market expectations of 7.5%.
Last month, the State Bank of Pakistan (SBP) accelerated its monetary easing by lowering its key policy rate again by 200 basis points to 17.5%, while on the other side, the market anticipated a cut of 150bps.
This marked the third consecutive rate cut, reducing the country's policy rate by a substantial 450 basis points overall since June 2024.
With this recent surprising reduction in inflation, the real interest rate — that is the difference between the nominal interest rate and the rate of inflation — has surged to a record high of 10.6%.
The real interest rate crossed the 1,000-basis point mark for the very first time in May 2024, when the monetary policy rate was at a record high of 22% and the CPI eased to 11.76%.
Interestingly, as the central bank continues to cut interest rates, the decline in inflation is significantly outpacing drops in interest rates, making investments more attractive and leading to a contraction in spending.
This marks a significant turnaround, as February 2024 marked the 37th straight month of negative returns for investors driven by surging inflation and contractionary monetary policy.
As of now, real interest rates have remained under the green zone for the seventh straight month, a positive streak not seen since late 2019.
Although this turns out to be beneficial for investors who see Pakistan as a source of investment, it threatens the primary objective of initiating policy rate cuts, which is to achieve a real GDP growth target of 3.6% in FY25.
Copyright Mettis Link News
Posted on: 2024-10-01T16:10:54+05:00
