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SBP leaves policy rate unchanged at 14pc

By Haris Afzal on Saturday, January 29, 2011 with 0 comments

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

The previous three consecutive rate rises sought to discourage government borrowing, but they proved ineffective in weaning Islamabad off State Bank funding.

SBP last raised the rate by 50 basis points to 14 percent on Nov. 29.

Eight out of 10 analysts had expected the central bank to increase its key policy rate by at least 50 basis points to 14.5 percent to combat double-digit inflation, which is potentially an explosive political issue.

While Kardar did not expect any immediate easing of inflation, he said the SBP realises the delicate balance between growth and dangers posed to inflation.

"In view of these circumstances, the state bank for now has decided not to change the policy rate and keep it at 14 percent."

Given the futility of further policy tightening, analysts reckon the State Bank of Pakistan would rather give priority to economic growth by keeping the key policy rate unchanged.

The balance of payments position is favourable and the current account posted a surplus of $26 million for the July-December period.

The sluggishness of the manufacturing sector, which indicates a lack of private sector demand, has also given the State Bank a reason to lean towards a looser policy stance.

Category: Business News

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