Finance: Interest rate cut in context

The recent cut in the interest rate by the State Bank of Pakistan (SBP) is well-calculated and well-timed. The 200 basis points cut in the central bank’s key policy rate — from 19.5 per cent to 17.5pc — is neither too small to make any impact nor too large to let inflationary pressure build up again. But will it help revive industrial production? And will the recent trend of slowing the inflation rate continue? Well, the answer to the first question depends largely on how long the ongoing increase in electricity and gas prices continues and whether Pakistan can get enough external financing soon. The National Electric Power Regulatory Authority (Nepra) has recently approved yet another upward adjustment of Rs1.74 in per-unit electricity price and gas tariff may also increase after a while to contain circular debt of the gas sector.