KARACHI: State Bank of Pakistan may cut interest rates for a second straight meeting, seeking to revive growth in an economy battered by terrorism and floods.

SBP will lower discount rate to 12.5 percent from 13.5, three of 5 economists in a Bloomberg news survey said. The rest predicted a reduction of half a percentage point before the announcement in Karachi today.

A 2 percentage point drop in Pakistan's inflation rate in past three months offers Acting SBP Governor Yaseen Anwar scope to join emerging markets from Russia to Brazil in lowering borrowing costs as growth falters in developed nations. A rate cut might help shore up growth prospects in an economy that's seen growing less than half the pace of fellow South Asian nations India, Bangladesh & Sri Lanka this year.

"Slowing inflation and a cut in government borrowing from central bank have built a strong case for an economic stimulus," Mustafa Pasha who manages equivalent of $50 million in bonds as a fund manager at BMA Funds Ltd. in Karachi, said before the rate announcement. "Investors are pricing in an aggressive action in the next meeting."

Pak Rupee weakened 1.7% this year and dropped to a record low on Sept. 16, prompting SBP last month to conduct what it called a "calibrated intervention" to stabilize the currency. A weakening currency will increase import costs and stoke inflationary pressures, limiting room for central bank to ease its monetary policy aggressively, said Sayem Ali, a Karachi-based economist at Standard Chartered Plc.

Floods in August forced more than one million people from their homes and damaged crops in parts of southern Pakistan still recovering from last year's worst ever monsoon inundations that devastated the region. Terror attacks in the country killed at least 35,000 people since 2006, according to government estimates.

Foreign direct investment in Pakistan fell 40 percent to $112.4 million in first two months of the fiscal year that started July 1 from a year earlier.

Business News