Finance Minister Muhammad Aurangzeb hasexpressed hope for a key policy rate cut this year by the State Bank of Pakistan in “line with inflation” on Wednesday.
The comments come as a Reuters poll of market watchers found that the SBP is widely expected to cut its key interest rate next week by 100 basis points after holding it at a record 22pc for seven straight policy meetings.
Speaking at the Pak-China Business Forum in Shenzhen, the finance minister highlighted that the country’s foreign exchange had been stable “both on the back of administrative measures” and structural changes.
He also noted that inflationary pressure had slowed to just above 11 per cent, beating the market consensus of 14pc.
While admitting that the policy rate was in the domain of the central bank, Aurangzeb said: “We do expect that the policy rate will start moving down in line with inflation because we have now enough cushion in terms of the positive real interest rate that we need to maintain.”
“Now markets have reacted positively, we have seen foreign buying coming into the stock exchange; equally we have seen fixed income institutional flows come back into Pakistan,” he said, adding that this showed signs of confidence developing in the economy of the country.
The minister also spoke about “three key aspects” which he called the “road to market” strategy, which the country aimed to move toward: export-led growth, foreign direct investment and access to international capital markets.
In terms of accessing international capital markets, the finance minister emphasised that they were very keen on “accessing the Chinese capital markets” and were in the preparatory stages for Pakistan’s inaugural panda bond issue which has previously never been done before, adding that they “are going to be in touch with the regulatory authorities here in China because this is going to follow a structure which the government of Egypt followed last year”.
He had previously said that Pakistan would like to raise $300 million in Panda bonds by tapping the Chinese bond market as and when the country’s credit rating improved.
Over 100 businessmen and companies from Pakistan were part of the delegation, seeking business opportunities days ahead of the annual budget.
Regarding the foreign reserves, Aurangzeb said that the number stood over “9 billion dollars which is close to import cover of two months”, adding that it was important to mentioned “not only the quantum of FX reserves but also the quality of FX reserves. These reserves have not been built on the back of debt stock”.
