Pakistan keeps benchmark rate unchanged for 2nd time in 2010
Monday, 29 March 2010
KARACHI, March 28 (Bloomberg): Pakistan's central bank refrained from cutting its benchmark interest rate as inflation of above 13 per cent prevents it from reducing borrowing costs to spur economic growth.
The State Bank of Pakistan maintained its discount rate at 12.5 per cent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
"Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended," Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have "increased considerably" due to the country's deteriorating security situation, according to the central bank.
"An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery," the central bank said in its statement yesterday. "A downward adjustment runs the risk of fuelling already high inflation."
The central bank's next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 per cent and power rates will be increased by more than 16 per cent, the newspaper said.
Consumer prices in Pakistan rose 13.04 per cent in February from a year earlier after climbing 13.68 per cent in January, after the government raised electricity and gas tariffs.
The central bank's efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan's finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 per cent since January 2008.
The State Bank of Pakistan maintained its discount rate at 12.5 per cent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
"Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended," Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have "increased considerably" due to the country's deteriorating security situation, according to the central bank.
"An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery," the central bank said in its statement yesterday. "A downward adjustment runs the risk of fuelling already high inflation."
The central bank's next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 per cent and power rates will be increased by more than 16 per cent, the newspaper said.
Consumer prices in Pakistan rose 13.04 per cent in February from a year earlier after climbing 13.68 per cent in January, after the government raised electricity and gas tariffs.
The central bank's efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan's finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 per cent since January 2008.