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.
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