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KARACHI - The State Bank of Pakistan kept the key policy rate for the next two months unchanged at 14 percent on Saturday, but urged more fiscal discipline in order to put a check on inflationary pressures.
“After incorporating the improved external position SBP has decided to keep the policy rate unchanged at 14 percent,” the SBP said, adding that the fiscal deficit needed to be contained. This was the third consecutive time the SBP left its key policy rate flat at 14 percent.
“The government is mindful of fiscal pressures and has expressed its resolve to address these issues, especially the containment of the fiscal deficit,” the SBP said while announcing the monetary policy.
It said weak economic growth, private investment and a large budget deficit still remain key challenges for macroeconomic stability in the shape of persistent inflation. In such circumstances, SBP is endeavouring to strike a delicate balance to address the multiplicity of considerations in formulating the monetary policy stance such as containing inflation, promoting private economic activity and keeping financial markets stable, the central bank said in a monetary policy decision, which was taken after its Central Board of Directors’ meeting held under the chairmanship of SBP Governor Shahid H Kardar in Karachi on Friday.
The SBP said a 12-month average of 20 percent trimmed measure of core inflation has continued to move between 11.5 and 12.5 percent during last year. Nonetheless, the average CPI inflation for FY11 is likely to remain between 14 and 14.5 percent, which is lower than SBP’s earlier projections, it said.
The SBP predicted that country’s exports would exceed $25 billion by the end of FY11 in anticipation of a spectacular rise in international cotton prices.
According to the SBP monetary policy document, the year-on-year growth in both reserve money and M2 remains close to 15.5 percent and may increase further by the end of FY11, which would be higher than SBP’s earlier projections. The magnitude of such borrowings poses a challenge for effective liquidity management with implications for inflation in FY12.
Posted in: Pakistan
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