Bloomberg News

Pakistan Keeps Benchmark Rate Unchanged as Inflation Accelerates

February 08, 2013

Pakistan’s central bank left interest rates unchanged as it tries to damp accelerating inflation while supporting expansion in an economy beset by an energy crisis.

The State Bank of Pakistan left the discount rate at 9.5 percent, Governor Yaseen Anwar said at a briefing in Karachi yesterday. All 15 analysts in a Bloomberg News survey predicted the decision. The monetary authority has reduced the benchmark by 2.5 percentage points since August last year.

Power cuts have hurt growth in the $210 billion economy, threatening to sap support for President Asif Ali Zardari’s administration ahead of a general election due by mid-2013. The nation is also grappling with a slide in foreign reserves and plunge in the rupee, which have increased the odds of a bailout by the International Monetary Fund.

“The recent rise in inflation gives the central bank reason to tread cautiously,” Sukhy Ubhi, an economist at Capital Economics Ltd. in London, said in a note. “Nonetheless, we think the SBP will probably cut its key rate later this year. Weak economic growth should prevent inflation from rising sharply.”

Consumer prices climbed 8.07 percent in January from a year earlier, the fastest pace in four months. Gross domestic product will increase 3.2 percent in the 12 months through June 2013, slower than last year’s 3.7 percent pace, IMF estimates show.

Subdued global growth and an insurgency on the Afghan border have also buffeted the South Asian nation’s economy.

Energy Challenge

“The main challenge for the next government is the energy shortage,” Anwar said at a briefing yesterday, adding it subtracts two to three percentage points from growth. Energy reforms would help lift potential expansion to as much as 7 percent, he said.

Pakistan is evaluating a possible loan from the IMF as a buffer against shocks, Saleem H. Mandviwalla, the minister of state for finance, told reporters Dec. 19 in Islamabad.

The rupee has weakened about 7.5 percent against the dollar in the past year. The benchmark Karachi Stock Exchange 100 Index has climbed 43 percent in the period, helped by increases in corporate profits.

Zardari’s democratically elected administration seeks to create history by becoming the first to complete its five-year term and transfer power through a ballot in a country ruled for half its history by the military.

To contact the reporter on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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