Pakistan inflation eases in December

Islamabad: Pakistan's inflation eased from near a three-decade high in December after the central bank raised its benchmark interest rate four times in 2008.

Consumer prices in South Asia's second-largest economy increased 23.34 per cent from a year earlier after gaining 24.68 per cent in November, the Federal Bureau of Statistics said in Islamabad yesterday.

Analysts were expecting a 22.6 per cent increase.

Slower inflation may allow the State Bank of Pakistan to refrain from another rate increase in its next policy statement later this month, economists said.

The central bank promised the International Monetary Fund as part of a $7.6 billion bailout to raise borrowing costs if foreign reserves drop too low.

"Given our declining inflationary numbers and stable exchange rate outlook, we expect interest rates to decline in coming months," said Muhammad Imran Khan, an analyst at First Capital Securities Ltd. in Karachi.

"An interim cut in the key policy rate between January and July cannot be ruled out."

Former governor Shamshad Akhtar on November 12 raised the central bank's key rate by two percentage points to 15 per cent, describing the move as "the toughest decision of my life".

The bank pledged to the IMF to increase the rate again if foreign reserves fell below $1.165 billion at the end of December.

Pakistan was forced to turn to the IMF for a rescue package after its reserves shrunk 75 per cent in a year to $3.45 billion.

The rupee declined as much as 26 percent last year.

Pakistan's economy may miss this year's growth targets and inflation may remain as high as 22 per cent, the central bank said in annual report on December 6. The pace of expansion in the fiscal year to June 30 may slow to between 3.5 per cent and 4.5 per cent, compared with a target of 5.8 per cent, it said.