ISLAMABAD – Fitch Solutions, a US-based global research house predictsstability in Pakistan economy following tough economic decisions.
Fitch solutions expects stability to return in Pakistan’s economy after thegovernment made two tough decisions in the past week.
The research arm of Fitch Ratings said in a report that the 150 basis pointinterest rate hike would support stabilisation in inflation over the comingmonths.
“In particular, the interest rate hike has brought the real interest ratefirmly into the positive territory of around 3.5pc, which should help tostabilise the rupee and hence the prices of imported goods,” it said.“Given our expectation for inflation to stabilise, we at Fitch Solutionsforecast the State Bank of Pakistan (SBP) to maintain its benchmarkinterest rate at 12.25pc throughout 2019.”
The SBP earlier this week announced a 150 basis points increase in itsbenchmark interest rate to 12.25pc following a 5.7pc devaluation of therupee to around Rs148 per dollar on May 17, from around Rs140 previously.
Read Top Stories
Fitch Solutions said higher interest rates and a more stable currency wouldease consumer price inflation, which has already started to fall slightlyto 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 inflationarypressure resulting from rising oil prices,” it said. “Accordingly, weforecast inflation to stabilise to an average of 7pc in FY20, slightlyhigher than SBP’s target of 6pc for FY19, but considerably lower from the8.8pc year-on-year recorded in April.”
The research body, however, forecast a corrosive impact of the rate hike oneconomic as well as credit growth.
