ISLAMABAD, Sept 29 (Reuters) – Pakistan’s central bank held its main policy interest rate unchanged at 5.75 percent on Friday, citing steadily rising economic growth and low inflation.
“The macroeconomic environment remains conducive to growth without impacting headline inflation,” the State Bank of Pakistan said in a statement.
Pakistan’s $300 billion economy expanded 5.3 percent in 2016/2017 (July-June), hitting the fastest pace in a decade, but State Bank said growth should edge higher in the next fiscal year.
“Based on current projections of agriculture sector growth, GDP growth is likely to reach the annual target of 6.0 percent for FY18 leading to an improved capacity to accommodate rising domestic demand,” the bank said.
Average consumer price inflation is “expected to remain well below FY18 target of 6.0 percent”, the State Bank added.
The bank warned that rising exports, foreign direct investment and remittances were not enough to offset a sharp jump in imports, including petroleum products and machinery for infrastructure projects as part of the China Pakistan Economic Corridor.
With foreign reserves dwindling, some analysts are warning Pakistan might need an International Monetary Fund (IMF) bailout to avert a balance of payments crisis akin to the one it suffered in 2013, when it also sought IMF help.
The bank in July suggested weakening the rupee to ease current account pressures but Finance Minister Ishaq Dar slapped down that idea.
In its latest statement, the State Bank said Pakistan’s foreign exchange reserves and external account pressures would be helped by structural reforms to improve trade competitiveness, something foreign donors have long advocated.
Analysts doubt any meaningful reforms will take place before the next general elections, due in mid-2018. (Reporting by Drazen Jorgic; Editing by Asif Shahzad and Clarence Fernandez)