Business | Economy
Pakistan raises key rate for third time
Pakistan's central bank increased its benchmark interest rate for a third time this year to tame inflation running at the fastest pace in three decades.
- Bloomberg
- Published: 23:47 July 29, 2008
Karachi: Pakistan's central bank increased its benchmark interest rate for a third time this year to tame inflation running at the fastest pace in three decades.
The State Bank of Pakistan raised the discount rate at which it lends to commercial banks to 13 per cent from 12 per cent, Governor Shamshad Akhtar told reporters on Tuesday in Karachi.
The move was predicted by six of seven analysts in a Bloomberg News survey, with one expecting an increase of 150 basis points.
"Inflationary pressures are more alarming than ever before,'' Akhtar said while releasing the central bank's semi- annual monetary policy statement.
"Global crude and commodity prices have induced recessionary trends in global economies. Pakistan is no exception." Pakistan joins neighbouring India in increasing rates today, as central banks across Asia grapple with soaring prices and slowing economic growth.
Higher borrowing costs in Pakistan may further weaken South Asia's second-largest economy, where last year's growth of 5.8 per cent was the weakest since 2003.
"The inflationary pressures are mainly caused by high food and oil prices so the increase in interest rates may not help in controlling inflation effectively," said Habib ur Rehman, who manages the equivalent of $83 million in stocks and bonds at Atlas Asset Management Co in Karachi.
"But it will slow down the economy." Consumer prices in Pakistan jumped 21.53 per cent in June from a year earlier, after gaining 19.27 per cent in May.
The central bank is aiming to keep average inflation at 12 per cent in the fiscal year that started July 1, the same as the previous 12-month period.
Declining Stocks Pakistan's stocks fell for a second day yesterday on fears an increase in interest rates may hurt company profitability.
The benchmark Karachi Stock Exchange 100 index dropped 1.2 per cent to 10,448.19.
Inflation may accelerate further after the government raised domestic fuel prices by as much as 15.2 per cent on July 21, the sixth increase in five months, in line with global oil costs. Crude reached a record $147.27 a barrel on July 11.
The central bank unexpectedly increased the benchmark rate by 1.5 per centage points to 12 per cent on May 23, also raising the cash reserve requirement for commercial lenders to 9 per cent of deposits from 8 per cent.
Central banks in Indonesia, Thailand and the Philippines have all increased interest rates in the past month. neighbouring India today raised its benchmark repurchase rate for a third time in less than two months to 9 per cent.
More from Economy
More from Business
Business Editor's choice
-
‘Wrong Way' Krugman
The source of our economic malfunction lies with government-mandated bank regulations
-
Greek exit could make Eurozone stronger
Departure will show limits of bailouts and allow remaining members to act much more like a unit
-
UAE upholds values of free trade
Recently released statistics confirm an established fact, namely that of the UAE embracing the free trade principle in general and imports in particular
