(Updates with closing shares in second paragraph, bonds in seventh.)
Oct. 10 (Bloomberg) -- Pakistan stocks gained after the central bank cut the benchmark interest rate by a bigger-than- forecast 1.5 percentage points, joining emerging markets from Russia to Brazil in lowering borrowing costs to spur investment.
The Karachi Stock Exchange 100 Index, which has climbed 0.6 percent this year, rose 2 percent to 12,092.32 at the 3:30 p.m. local time close, its highest since Aug. 2. Oil & Gas Development Co., the biggest fuel explorer, rose 3.7 percent to 141.03 rupees and Fauji Fertilizer Co., the biggest urea maker, rose 4.5 percent, to 178.06 rupees.
The State Bank of Pakistan reduced the discount rate to 12 percent from 13.5 percent, according to a statement in Karachi on Oct. 8. Three of five economists surveyed by Bloomberg News predicted a 1 percentage point cut, and the remainder forecast a 0.5 percent reduction.
Acting Governor Yaseen Anwar had room to act after Pakistan’s inflation rate dropped 2 percentage points in the past three months. A rate cut might support an economy that’s seen growing less than half the pace of fellow South Asian nations India, Bangladesh and Sri Lanka this year.
“With the level of the rate cut, today’s jump was expected,” said Habib ur Rahman, who oversees 7 billion rupees ($80 million) in stocks and bonds at Atlas Asset Management Ltd. in Karachi. “I can see the market continuing to gain till December because high-yielding stocks are attractively priced.”
Global funds sold $47.1 million worth of Pakistani stocks in July and August compared with net buying of $95.6 million last year, according to central bank data.
The Karachi Interbank Offered Rate, the benchmark borrowing rate for commercial banks, fell to 11.97 percent from 12.90 percent, according to Bloomberg data. The yields on the 12-month treasury-bill and the 10-year investment bond both declined by 1 percentage point to to 12.85 percent and 12 percent respectively, according to Arif Habib Ltd., in Karachi.
The rupee, which has shed 2 percent this year and dropped to a record low on Sept. 16, declined 0.3 percent to 87.47 to the U.S. dollar. The central bank conducted what it called a “calibrated intervention” last month to stabilize the currency.
Prime Minister Syed Yousuf Raza Gilani’s government is aiming to boost economic growth to 4.2 percent in the fiscal year ending June 30, from 2.4 percent in the previous year, one of the lowest expansions in the past decade, as the country struggled to cope with floods and militant attacks.
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 inundation that devastated the region. Terror attacks in the South Asian nation have killed at least 35,000 people since 2006, according to government estimates.
The central bank decided to slash its policy rate for a second straight meeting because of a “high probability” of meeting the inflation goal for fiscal 2012 and to stimulate investment, according to central bank’s statement. The State Bank is targeting an average inflation of 12 percent in the year ending June 30, 2012.
Consumer prices rose 10.46 percent in September from a year earlier, after climbing 12.43 percent in July, according to the Federal Bureau of Statistics.
“If the rate cut is backed by other positive factors like an ease in inflation and a pickup in growth activity, we can see the index around 14,000 points by June 2012,” said Mohammad Shoaib, who oversees the equivalent of 32 billion rupees in Pakistani stocks and bonds at Al-Meezan Investment Management Ltd. in Karachi.
The government named Anwar, a deputy governor since March 2007, as the central bank’s acting chief after Shahid Kardar quit on July 12. The State Bank unexpectedly cut rates in the July 30 policy decision, almost three weeks after Kardar resigned blaming state spending for fanning prices.
Anwar cited the government’s commitment to “zero borrowings” from the central bank as one of the reasons for reducing rates in July. The federal government paid back 33 billion rupees to the central bank this fiscal year against 238 billion rupees borrowing in the same period a year ago, according to the central bank.
--Editors: Naween A. Mangi, David Merritt
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