Pakistan is set to extend a six-month pause in interest-rate increases as inflation eases and the government prepares to tighten fiscal policy amid concern the killing of Osama bin Laden will lead to a cut in U.S. aid.
Pakistan’s unexpected interest-rate cut, almost three weeks after a governor resigned blaming state spending for inflation, shows the pressure the central bank faces from the government to reduce borrowing costs.
The resignation of two central bank governors and one finance minister in Pakistan since the start of 2010 has exposed a breakdown in policymaking, threatening efforts to revive growth amid surging prices and terrorism.
Pakistan extended a six-month pause in interest-rate increases as inflation eased and the central bank awaits next month’s budget for signs the government will tighten fiscal policy and help contain prices pressures.
Asian central banks from Thailand to the Philippines may be preparing to cut interest rates as an escalating impact from Europe’s debt crisis prompts economists to scale back growth forecasts for the region.