SBP reduces policy rate by 50 basis points

Acting Governor SBP Yaseen Anwar unveiled the Monetary Policy Statement for the fiscal year 2012.

Ppi July 30, 2011

KARACHI: The State Bank of Pakistan (SBP) on Saturday decided to reduce its policy rate by 50 basis points to 13.5 per cent with effect from August 01, 2011.

This was announced by Yaseen Anwar, acting Governor SBP while unveiling the Monetary Policy Statement in press conference at the SBP, Karachi.

“The average inflation in FY12 is expected to remain in line with announced target,” Anwar said. No adjustment in the interest rate would have entailed further tightening of monetary policy in real terms, which is not warranted given the decline in private investment,” he added.

He said despite fiscal slippages, the government has adhered to restricting the stock of its borrowings from SBP to Rs 1155 billion. "The government retired these borrowings compared to both end-June 2010 level as well as mutually agreed limit of end-September 2010 level," he added.

Anwar noted that expectations of inflation are fairly entrenched in the economy. "Thus, a meaningful reduction in inflation would require consistent and credible implementation of monetary and fiscal policies," he stressed.

He said the government has announced an inflation target of 12 percent for FY12. The government has also provided in Medium Term Budgetary Framework (MTBF) a desired path of inflation of 9.5 per cent and eight per cent for subsequent two years.

Conditional on factors such as adjustments in administered prices of electricity and oil and projected broad money (M2) growth of 15 to 16 per cent, SBP's forecast of average inflation ranges between 11 and 12 per cent during FY12, he added.

Anwar underscored the need to accelerate implementation of fiscal reforms currently being considered by the government. A path of fiscal deficit in next three fiscal years has been provided in MTBF, which shows budget deficit target of 4 per cent for FY12.


Maverick | 11 years ago | Reply

If anything, rates needed to be raised rather than cut because inflation is too high and shows no signs of abating. Real rates are still firmly in negative territory so savers are being penalised.

Inflation means a redistribution of income away from the poor, in favour of the rich. It eats away at the very fabric of society. It damages export competitiveness etc etc Need anyone say more?

Apparently, Pakistan's policy-makers are oblivious to all this, as was evidenced by Anwar's predecessor Kardar- who sat on his hands and did nothing- and Anwar himself who is apparently so eager to establish his credentials as a lackey of Islamabad, that he has taken the reckless step of cutting rates, in the hope of securing permanent appointment. God help us!

pakwatan | 11 years ago | Reply

Good job. One buffoon leaves and another takes his place.

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