They expect the central bank to wait for the release of an assessment of the damage from devastating floods that began in late July, which is due to be issued in mid-October, say a Reuters poll.
“It is too soon to react to the devastation caused by the floods, plus the central bank already pre-empted in July by hiking the policy rate to enforce fiscal discipline,” said a treasurer at a domestic bank.
The central bank raised its key policy rate by 50 basis points to 13 per cent in July, before the floods. Following the floods, the International Monetary Fund (IMF) forecast inflation to rise to 13.5 per cent for the 2010-11 fiscal year (July-June) compared with an earlier projection of 11.5 per cent.
The government’s domestic net financing needs will increase after the floods and about Rs2 trillion ($23.28 billion) in treasury bills will need to be rolled over this fiscal year, the IMF said, while private demand will soften and undermine the already weak recovery in private sector growth. “The SBP (State Bank of Pakistan) is facing a difficult balancing act,” the IMF said.
The remaining four analysts expect a rise in the policy rate as the risk of inflation is increasing and government expenditure will increase because of flood relief, rehabilitation and reconstruction.
Published in The Express Tribune, September 25th, 2010.
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