State Bank policy rate same, inflation down

KARACHI/LAHORE – Warning against complacency, the State Bank of Pakistan (SBP) on Saturday decided to keep the policy rate unchanged at 14 percent on the back of favourable external accounts and relatively disciplined government borrowings from the central bank.
According to the central bank, inflation in Pakistan had come down year-on-year from 15.5 percent in December 2010 to 12.9 percent in February 2011. The central bank, however, noted that inflation persistence in the country remained high, which was largely formed by recent past levels of inflation and perceptions of economic agents about the credibility and direction of monetary and fiscal policies in controlling inflation and promoting long-term sustainable economic growth.
Praising the government’s recent measures to arrest fiscal deficit, the SBP urged the country’s economic managers to do more to ensure progress on comprehensive tax reforms, transparent rationalisation of subsidies and the development of a forward-looking debt management strategy.
The regulator said current stability in the financial markets provided valuable time to initiate structural reforms. The SBP said as of March 12, the year-on-year growth in reserve money was 15.9 percent, slightly lower than the growth rate observed at the time of last monetary policy decision in January 2011.
By end-December 2010, the year-on-year growth in government’s total debt was 14.8 percent, with 45 percent of the tax revenue being absorbed by interest payments. The year-on-year growth in private sector credit, on the other hand, was only 5 percent until March 12, 2011.