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Pakistan's Interest Rates: The Latest News

The monetary policy of the country that has the 6th largest population in the world is regulated by State Bank of Pakistan. Considering, the economic conditions of Pakistan strife with loans, inflation and trade deficit, the central bank is assigned with no easy task. Then again, being the monetary authority, it is responsible for factors that control the economic growth of country. It has recently announced the monetary policy for two months, according to which the policy rate would remain at 12%. This has been done to ensure macro-economic stability which has witnessed a greater risk in the last two months due to the increase in inflation on a monthly basis. The banking system in Pakistan which was running dry has been given the motivation to compete by encouraging depositors to invest in government securities. With a better return on their saving deposits, more consumers would look forward to investing, thus lowering the currency in circulation. However, it was the central bank itself which has been accused of printing currency notes adding to the problem of rising inflation in the country. More importantly, the rupee has lost its value by 3.2 percent compared to U.S dollar this year. If the trend continues, then keeping the policy rate unchanged will not act as a savior.

INTEREST RATE UNCHANGED AT 12%

As part of food security, the wheat support price has been increased from Rs100 to Rs1050 per 40kg. The benefits of this have not translated into profit for the farmer or the local consumer. Mismanagement on the part of government has resulted in wheat surplus going to waste. Looking below at the trade deficit, one can only hope that the government will take substantial steps to export this surplus wheat. The current account position of Pakistan shows no improvement with a deficit of $1.6 billion. This deficit is widening at a worrying speed and will not slow down unless the reliance on imports is reduced. Quite obviously, trade deficit and global oil prices are the main contributing factors. One of the aims of the monetary policy has been to encourage private investment. However, with the security concerns, international borrowing and power crisis, the government needs to do more for this aim to materialize.

A 51% increase has been seen in the number of users that have adopted branchless banking. The growth can be attributed to factors such as the introduction of mobile banking. The convenience of conducting bank transactions through cell phones and the internet is far more than waiting in long lines in front of banks. The facility of mobile banking is not only available in urban centers but also in rural areas which have been previously denied of efficient banking services. Currently, Pakistan has only one registered branchless bank that is working in collaboration with a mobile communication company to promote mobile banking among consumers. Considering, the competitiveness among mobile communication companies in PaTkistan, it wouldn't be long before other operators started providing similar banking facilities. Moreover, the popularity and provision of ATMs across the country has benefited most consumers who can draw cash at will. Such 24 hour banking services are not only low cost but also eliminate the hassle of administrative procedures.

Read more about Pakistan's economy at Pakonomy.

Pakonomy.com: the purpose of this site is to educate most people who likely know very little about the world's 6th largest country by population. Pakonomy covers everything you need to know about Pakistan's economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.