Arab Today, arab today pakistan rate cut signals pressure on central bank
Last Updated : GMT 05:18:51
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Pakistan rate cut signals pressure on central bank

Arab Today, arab today

Arab Today, arab today Pakistan rate cut signals pressure on central bank

Islamabad - Arabstoday

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 State Bank of Pakistan lowered the discount rate to 13.5 per cent from 14 per cent, Acting Governor Yaseen Anwar said at a news conference in Karachi on Saturday, citing a slower inflation forecast for the move. None of the 11 economists in a Bloomberg News survey predicted the decision. Anwar said the government has committed to ‘zero borrowings\' from the central bank and its access to funds from commercial lenders needs to be \"monitored closely to assess potential risks\". Growing public debt and living costs have fanned Pakistan\'s 10-year government bond yields to the highest level after Greece, according to data compiled by Bloomberg. Article continues below \"There can be political pressure on the central bank since it is still not empowered by law to make independent decisions,\" said Sa\'ad Khan, a Karachi-based economist at brokerage Arif Habib Ltd. \"The government wanted interest rates to come down which was contradictory to the central bank\'s stance throughout the last fiscal year.\" Zero borrowings Pakistan\'s 10-year government bond yields have climbed 1.04 percentage points in the past year to 13.95 per cent, compared with 14.12 per cent in Greece, according to Bloomberg data. The currency, which has weakened 1 per cent in the period, fell 0.1 per cent to 86.65 against the dollar at 10:40am in Karachi. Prime Minister Yousuf Raza Gilani\'s government named Anwar, a deputy governor since March 2007, as the central bank\'s acting chief after Shahid Kardar resigned on July 12. Average inflation in the year that began July 1 is forecast to be 11 per cent or 12 per cent, Anwar said, compared with 13.92 per cent in the previous year. Consumer prices in Pakistan climbed 13.1 per cent in June, the most after Vietnam, among the 17 nations in the Asia Pacific tracked by Bloomberg. Kardar blamed increased government borrowing for inflation and kept the central bank\'s policy rate, one of the highest in the world, unchanged since January this year after raising it in September and November by half a percentage point. Kardar said his differences with the government were impeding the central bank\'s autonomy and ability to ensure \"prudent\" monetary decisions. Moody\'s Investors Service said his exit underscores the \"discord\" in policy leadership. The government has \"expressed its commitment to continue with a stance of zero borrowings from SBP in yearly flow terms in financial year 2012, which bodes well for anchoring inflation expectations,\" according to a statement from the central bank.  

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