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Pak central bank expects GDP growth
Islamabad, Mar 30: The central bank`s strong wording on inflation marks a departure from its relatively mild stance in previous reports.
Islamabad, Mar 30: The central bank's strong wording on inflation marks a departure from its relatively mild stance in previous reports.
The central bank has kept its key discount rate - at which banks borrow for up to three days - unchanged at 7.5% since November 2002, but it has been slowly adjusting treasury bill yields higher since January to contain inflation.
The report said inflationary pressures during the first half of fiscal 2003-04 weren't significant enough to damage the economy as they were driven by food prices rather than excess system liquidity.
It also said the central bank tried to keep t-bill yields - which banks use as benchmarks to price loans - relatively stable in the first fiscal half, to crush market expectations of a rapid rise in interest rates.
The recent surge in inflation has been driven by food prices while the rise in non-food and non-oil inflation has remained slow, a reason for the central bank's cautious approach to monetary policy, the report said.
Inflation as measured by the consumer price index accelerated in February to 4.31% on year, but has averaged 3.49% in the first eight months of the current fiscal year.
But the central bank warned it might need to contain money supply growth going forward by scaling down its dollar purchases from the inter-bank market.
Pakistan's money supply, or M2, growth is projected to rise to 16%-17% in the current fiscal year, from 11% projected in July, it said.
The central bank said improving inflow of remittances and debt rescheduling by international lenders has allowed the government to invest more in the social sector.
Pakistan has benefited from the US' writing off and rescheduling of debt since it joined the US-led coalition against terrorism after September 11, 2001.
The budget deficit is also expected to remain below a targeted 4% in the current fiscal year.
The bank also warned job creation won't pick up unless economic growth rises above 6%. It also urged authorities to continue economic reforms even after Pakistan stops borrowing from the International Monetary Fund after its three-year $1.3 billion loan program ends this year.
Bureau Report
The recent surge in inflation has been driven by food prices while the rise in non-food and non-oil inflation has remained slow, a reason for the central bank's cautious approach to monetary policy, the report said.
Inflation as measured by the consumer price index accelerated in February to 4.31% on year, but has averaged 3.49% in the first eight months of the current fiscal year.
But the central bank warned it might need to contain money supply growth going forward by scaling down its dollar purchases from the inter-bank market.
Pakistan's money supply, or M2, growth is projected to rise to 16%-17% in the current fiscal year, from 11% projected in July, it said.
The central bank said improving inflow of remittances and debt rescheduling by international lenders has allowed the government to invest more in the social sector.
Pakistan has benefited from the US' writing off and rescheduling of debt since it joined the US-led coalition against terrorism after September 11, 2001.
The budget deficit is also expected to remain below a targeted 4% in the current fiscal year.
The bank also warned job creation won't pick up unless economic growth rises above 6%. It also urged authorities to continue economic reforms even after Pakistan stops borrowing from the International Monetary Fund after its three-year $1.3 billion loan program ends this year.
Bureau Report