Business

SBP leaves policy rate unchanged

SBP leaves key policy rate unchanged at 14 per cent for subsequent 2 months.

Reuters January 29, 2011

KARACHI: The State Bank of Pakistan (SBP) has decided to leave its key policy rate unchanged at 14 per cent for the subsequent two months, SBP Governor Shahid Kardar said on Saturday.

The move comes as a surprise after majority analysts had expected a 50 basis point increase to 14.5 per cent.

The central bank last raised the rate by 50 basis points to 14 percent on Nov 29.

The consumer price index in December rose 15.46 per cent from a year earlier, but fell 0.51 per cent from November and is likely to fall further due to the base effect. However, the main threat to inflation is continued government borrowing from the SBP.

The government borrowed an estimated Rs119.6 billion from the central bank from July 1 to January 15, compared with a net retirement of Rs19.4 billion in the same period last year. This increases the money supply which fuels inflation.

The government's borrowing from commercial banks has also increased substantially to Rs217.5 billion from July 1 to January 15, compared with Rs170.9 billion last year.

COMMENTS (4)

Govinda Maheshwari | 13 years ago | Reply @Echo Cave: again the problem is not the raising the discount rate it is not solution of the problem, we have to take strong action to reduce our budget deficit. At the time of budget the government has promised that they wont borrow single penny from sbp but there borrowing had reached to the peak of 400 billion in the novermber. rather than borrowing government must introduce the new tax on agriculture but they wont impose any type of tax because all politician are landlord so why they will impose any tax on land. Pakistan soon will face the same condition as EGYPT is currently facing.

Echo Cave | 13 years ago | Reply Wonder what your explanation will be when they raise rates by 50-100 bps in two months time...

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Govinda Maheshwari | 13 years ago | Reply One thing i have not understand is the Pakistan economy. Government must take the action to reduct the inflation else it will be difficult for them to run the government. increase in the borrowing has raised the inflation and create huge difficulty for middle class to survive. if we go through the statistics that 37% people of pakistan are below poverty and 50% are middle class. so it mean inflation is problem of 87% people. In this scenario SBP decision was not wise one. Because only one way to control the inflation is raise in discount rate, But again the problem is industry, we are at the worst stage of economy, and if SBP start to raise the discount rate than it will be quite difficult for industry to survive, so whole economy will start collapse. The only possible solution is that government must stop borrowing from banking sector, and stop printing new notes, else we will face new disaster of inflation

Meekal Ahmed | 13 years ago | Reply Probably the right thing to do if inflation has peaked and is headed downwards. Of course the SBP is also looking at the more meaningful non-oil non-food and trimmed core rate of inflation.

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