KARACHI: State Bank of Pakistan on Friday kept its key policy rate unchanged at 12 percent for the subsequent two months to rein in inflation and because of weak external accounts.
The decision was in line with what analysts polled by Reuters earlier this week had expected.
"The primary consideration remains bringing inflation further down as it has persistently remained in double digits in the last few years," the State Bank of Pakistan said.
Average inflation for the first nine months of 2011/12 was 10.79 percent and is expected to be within the government's full-year target of 12 percent, but it remains elevated and is a major concern.
Pakistan aims to target inflation at 9.5 percent in 2012/13 and 8 percent in fiscal year 2013/14.
The central bank also expressed concern about heavy government borrowing from the banking system.
Government borrowing from scheduled banks increased by 56.5 percent to 373 billion rupees ($4.1 billion) from July 1 to March 30, compared with same period last year, while borrowing from the central bank rose 18.5 percent to 218 billion rupees.
When the government borrows from the central bank, that increases the money supply, which fuels inflation.
Heavy government borrowing from commercial banks, meanwhile, means those banks are less likely to lend to the private sector, which hobbles economic growth.
The State Bank of Pakistan said provisional data suggests the fiscal deficit may have reached 4.3 percent of GDP in the first nine months ending March 30, compared with a full-year revised target of 4.7 percent.
"With a gradually rising external current account deficit and consistently declining foreign inflows, the SBP's foreign exchange reserves are on a declining path," the central bank said.
Pakistan's current account deficit widened to $2.95 billion in the first eight months of the 2011/12 fiscal year, compared with $194 million over the same period the previous year.
The current account deficit in February was $260 million, compared with a deficit of $98 million in February 2011. The deficit stood at $364 million in January 2012.
Its reserves have also fallen to $16.52 billion in the week ended April 6, compared with a record high of $18.31 billion in July last year.
With a lack of external flows and a repayment of an $8 billion International Monetary Fund loan, the reserves are expected to come under further pressure.
The central bank has left its key policy rate unchanged since cutting it by 150 basis points to 12 percent on Oct. 8, 2011. ($1 = 90.7200 Pakistani rupees).
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