Interest rate cut

CITING a better-than-anticipated decline in May’s inflation figures, the State Bank ceded to rate cut demands on Monday, by slashing its policy rate by 150bps to 20.5pc, after having held it steady at a record 22pc for nearly a year. The bank also mentioned the uptick in economic activity, and improvements in the external sector outlook and international reserves, resulting from a lower current account deficit, as factors leading to its decision. The bank had been resisting mounting pressure to start reversing monetary tightening ever since inflation began slowing in January. Critics of the bank’s restrictive policy stance insisted that higher rates could not go on forever without damaging the economy. Even the finance minister repeatedly expressed hopes for rate cuts in “line with inflation”. The big drop in May’s inflation to 11.8pc, however, was widely seen as evidence justifying the bank’s shift to a slightly less restrictive stance, amid the growing clamour for respite from crushingly high lending rates.