Pakistan's central bank unexpectedly cut interest rates, almost three weeks after its governor resigned blaming state spending for price pressures in a nation with the second-fastest inflation in Asia.
The State Bank of Pakistan decreased the discount rate to 13.5 per cent from 14 per cent, Acting Governor Yaseen Anwar said at a news conference in Karachi, adding that the government's commitment to zero borrowing prompted the reduction. None of the 11 economists in a Bloomberg News survey predicted yesterday's decision.
Shahid Kardar's departure as central bank chief July 12, the second person to quit the post in about a year, had threatened to expose a breakdown in policymaking, undermining efforts to revive growth amid rising costs and terrorism. The risks fanned Pakistan 10-year government bond yields to the highest level after Greece among debt markets tracked by Bloomberg.
"It's a risky decision," Khurram Schehzad, head of research at Invest Capital Market, said after the announcement. "I don't think the government will reduce its borrowings given the size of the fiscal deficit. Pakistan needs to tackle inflation to get growth back on track."
Pakistan's 10-year government bond yields have climbed 1.04 percentage points in the past year to 13.95 per cent, compared with 14.12 per cent in Greece, according to Bloomberg data. The currency weakened 1 per cent to 86.50 per dollar in the period.
Kardar said his differences with the government were impeding the central bank's autonomy and ability to ensure "prudent" monetary decisions, and Moody's Investors Service said his exit underscores the "discord" in policy leadership.
Jaffer Qamar, the chief economist at the Planning Commission of Pakistan and the government's Auditor General Tanvir Ali Agha also resigned this month. Shaukat Tarin quit as finance minister in February 2010, becoming the third person at the time to relinquish charge of the ministry in two years. Kardar had replaced Syed Salim Raza, who left in June 2010.
Prime Minister Yousuf Raza Gilani's government named Anwar, a deputy governor since March 2007, as the central bank's acting chief.
Average inflation in the year that began July 1 is forecast to be 11 or 12 per cent, Anwar said yesterday, lower than 13.92 per cent in the year ended June 30.
Kardar blamed increased government borrowing for price gains and kept the central bank's policy rate, one of the highest in the world, unchanged since January this year after raising it in September and November by half a percentage point each.
From/ Gulf News