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SBP Cuts the discount rate by 150 bps in the MP announcement on 10 August 2012

The State Bank of Pakistan today surprised pundits and analysts by cutting the discount rate by 150 basis points. Markets had priced in a 50 bps cut and some analyst had forecasted room for 100 bps downward adjustment. SBP’s aggressive tone surprised analysts and is likely to be welcome by the business community.

However the move is likely to be criticized by monetary economists who believe that the adjustments used to justify the rate cuts are all temporary in nature. We will have to wait for the next MP announcement two months down the road in October 2012 to see if the relief given by SBP turns out to be permanent.