State Bank of Pakistan Governor Yaseen Anwar has said inflation will remain in the targeted limit and the issue of circular debt can be tackled through the development of corporate debt market in the country. SBP governor was speaking to the media after the prize distribution ceremony of the ‘8th State Bank Governor Cup – Super Series Inter-Bank Cricket Tournament 2012’ here on Monday. Anwar said that the government had fixed the inflation target of 11-12 per cent for the current fiscal and it would remain in the limit.
Responding to a question, he said that Monetary Policy did not have immediate effect. It had a lagging period of six months to a year. The central bank reduced discount rate by 200 basis points in the past because inflation was dropped at that time. It provided the SBP room to play with and the central bank stroked the opportunity, he underlined.
Anwar said that in result of easing out discount rate, credit to private sector witnessed increase. Right now, as the inflation was persistent thus the central bank did not consider it necessary to reduce discount rate. However, the SBP was consciously monitoring the trend and would react on the right time, he maintained.
Speaking about the government borrowing, he said that as the government borrowing target had been fixed for the fiscal year thus before the end of the financial year it could go up and down. “It does not matter if the government exceeds limits for a quarter. We have enough time to review the situation,” he said and added that some good inflows were expected during the current fiscal and if they materialised fiscal targets could be achieved.
Answering a question about circular debt, the central bank governor said that debt swapping was a remedial step for short-term fix and it was a right decision. However, the country needed a long-term solution and permanent solution to this problem.
He pointed out that the SBP and Securities and Exchange Commission of Pakistan (SECP) were on the same page to resolve this issue. He underscored that the circular debt issue could only be resolved by creating liquidity, not only from the banking system but also from the whole country. He elaborated that one solution was development of corporate debt market in the country. It would develop institutional bonds for fixed income up to 30 years and secondary market that would absorb the circular debt as liquidity would be available. However, it would require some time, he added.
