International Rating agency predicts stability in Pakistan economy following tough economic decisions

International Rating agency predicts stability in Pakistan economy following tough economic decisions
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ISLAMABAD - Fitch Solutions, a US-based global research house predicts stability in Pakistan economy following tough economic decisions.

Fitch solutions expects stability to return in Pakistan’s economy after the government made two tough decisions in the past week.

The research arm of Fitch Ratings said in a report that the 150 basis point interest rate hike would support stabilisation in inflation over the coming months.

“In particular, the interest rate hike has brought the real interest rate firmly into the positive territory of around 3.5pc, which should help to stabilise the rupee and hence the prices of imported goods,” it said. “Given our expectation for inflation to stabilise, we at Fitch Solutions forecast the State Bank of Pakistan (SBP) to maintain its benchmark interest rate at 12.25pc throughout 2019.”

The SBP earlier this week announced a 150 basis points increase in its benchmark interest rate to 12.25pc following a 5.7pc devaluation of the rupee to around Rs148 per dollar on May 17, from around Rs140 previously.

Fitch Solutions said higher interest rates and a more stable currency would ease consumer price inflation, which has already started to fall slightly to 8.8pc year-on-year in April from 9.4pc year-on-year in March.

“We believe that the recent hikes will be able to counter the inflationary pressure resulting from rising oil prices,” it said. “Accordingly, we forecast inflation to stabilise to an average of 7pc in FY20, slightly higher than SBP’s target of 6pc for FY19, but considerably lower from the 8.8pc year-on-year recorded in April.”

The research body, however, forecast a corrosive impact of the rate hike on economic as well as credit growth.

Economy