Pakistan Holds Key Rate as Inflation Surges to Two-Year High

  • Pakistan’s large scale manufacturing growth intact: analyst
  • Government targets to grow at fastest pace in a decade

Pakistan’s central bank left its benchmark interest rate unchanged for the fifth straight meeting, unfazed as inflation rises at the fastest pace in almost two years.

The State Bank of Pakistan left the target policy rate at 5.75 percent, the central bank said in a statement on its website on Saturday. The move was predicted by all 19 economists in a Bloomberg survey.

“Inflation expectations in the current fiscal year continue to remain well anchored,” the Karachi-based central bank said in the statement. “Real economic activity continues to gather pace at the back of better agricultural output, increase in key large-scale manufacturing sectors and a healthy uptick in the credit to private sector.”

The room to continue one of the steepest rate cut cycles in Asia is ending as price pressures pick up across the world and the U.S. tightens policy. However loans to Pakistan’s private sector are at the highest in at least nine years, supporting Prime Minister Nawaz Sharif’s aim to boost growth to the fastest pace in a decade as China invests $55 billion.

Consumer prices rose 4.22 percent in February, the fastest pace since December 2014, according to data compiled by Bloomberg, though lower than the 4.44 percent estimate. Sharif’s government projects average inflation at 5 percent for the year through June.

Pakistan’s inflation shouldn’t go “haywire” and a rate hike is not expected in the near term, Finance Minister Ishaq Dar said in an interview last month while maintaining that the central bank was independent.

“Pakistan’s large scale manufacturing growth has slowed down slightly, but is broadly still intact,” Shiraz Zaidi, an analyst at Karachi-based brokerage Arif Habib Ltd. said before the decision. “Inflation is expected to remain range bound in the upcoming months.”

— With assistance by Ismail Dilawar, and Manish Modi

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