Pakistan Central Bank Holds Interest Rate at 12.00%

The State Bank of Pakistan maintained its discount rate unchanged at 12.00%.  The Bank said: "In conclusion, despite moderate aggregate demand, pressure on rupee liquidity is likely to continue due to uncertain foreign inflows and substantial government borrowings to finance the fiscal deficit. Moreover, inflationary pressures have not eased significantly. It must be emphasized that sustainable economic recovery over the medium term would call for a sizable increase in both the domestic and foreign private investment in the economy. For this to happen, the business confidence needs to be revived by reducing uncertainties due to energy shortages."

Pakistan's central bank last cut the discount rate by 150 basis points in October last year, and 50 basis points to 13.50% at its July meeting.  Pakistan reported annual inflation of 10.1% in January, compared to 10.46% in September, 11.56% in August, 13.77% in July, 13.92% in June, 13.23% in May, and 13.04% in April.  The Pakistani government previously announced an inflation target of 12 percent for fiscal 2012, with a desired path for inflation of 9.5% and 8% in the subsequent 2 years.  

The Pakistani Rupee (PKR) has depreciated about 7% against the US dollar over the past year, and the USDPKR exchange rate last traded around 90.8.  The Karachi Stock Exchange KSE100 Index is up 8.7% over the past year, last trading around 12,232.

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