Sunday, December 19, 2010

Interest rate in Pakistan hits world’s highest in 2010

Interest rate in Pakistan hits world’s highest in 2010
KARACHI: The back-to-back increase in the policy rate during the last six months has placed Pakistan on top of the list of countries having highest interest rates, analysts said on Saturday.
Since the last three monetary policies, the central bank has chosen to prop up the key discount rate by a total of 150 basis points to 14 percent, after keeping it constant at 12.5 percent during the entire January-June period.
The rate we have now is highest in the world among the developed and developing economies. The only exception is Venezuela,” said Ahsan Mehanti, Director at Arif Habib Investments. Venezuela’s annual inflation rate surpassed 30 percent in April.
Contrary to its aim, analysts said, the central bank has failed to use monetary policy as a tool to check inflation.
The SBP, in the last monetary policy announcement in November, defended its decision to increase the discount rate. It said that the key economic variables are impeding stabilisation, which resulted in persistently high inflation, continuing fiscal slippages and unresolved power sector issues.

In order to curb the rising inflation, analysts said the government must reduce its borrowing from financial institutions. The Governor State Bank, Shahid H. Kardar, told a gathering of industrialist last week that the total government borrowing had crossed Rs1,500-billion mark.
Inflation would grow further if the government keeps on borrowing from banks,” Mehanti said.
Inflation would persist in 2011 as the government borrowing could not be curtailed so far, they said, adding that inflation would remain at 17 percent next year.

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