Pakistan CB keeps rate steady at 12 %

Pakistan’s central bank on Friday kept its key policy rate unchanged at 12 per cent for the subsequent two months to rein in inflation and because of weak external accounts.  The decision was in line with what analysts polled by Reuters earlier this week had expected. “The primary consideration remains bringing inflation further down as it has persistently remained in double digits in the last few years,” the State Bank of Pakistan said. Average inflation for the first nine months of 2011/12 was 10.79 per cent and is expected to be within the government’s full-year target of 12 per cent, but it remains elevated and is a major concern. Pakistan aims to target inflation at 9.5 per cent in 2012/13 and 8 per cent in fiscal year 2013/14. The central bank also expressed concern about heavy government borrowing from the banking system. Government borrowing from scheduled banks increased by 56.5 per cent to 373 billion rupees ($4.1 billion) from July 1 to March 30, compared with same period last year, while borrowing from the central bank rose 18.5 per cent to 218 billion rupees. When the government borrows from the central bank, that increases the money supply, which fuels inflation. Heavy government borrowing from commercial banks, meanwhile, means those banks are less likely to lend to the private sector, which hobbles economic growth. The State Bank of Pakistan said provisional data suggests the fiscal deficit may have reached 4.3 per cent of GDP in the first nine months ending March 30, compared with a full-year revised target of 4.7 per cent.