SBP keeps main interest rate at 5.75pc

KARACHI: State Bank of Pakistan (SBP) kept its main policy interest rate unchanged at 5.75 percent on Friday, citing steadily rising economic growth.

Pakistan's $300 billion economy expanded 5.3 percent in the fiscal year that ended in June - the fastest rate in a decade - but State Bank, the central bank, said growth should edge up to 6.0 percent in the fiscal year starting next July.

"Economic activity is strong," the State Bank of Pakistan said in a statement. "This implies that the prospects of achieving 6.0 percent target of real GDP growth continue to be strong."

The South Asian nation has recently been battling to stave off balance of payments pressures due to dwindling foreign currency reserves and a widening current account deficit.

Near-term balance of payments challenges persist, the bank said. It said it hoped that improvements in export growth, increases in foreign direct investment and other financial inflows would help contain these pressures.

Average consumer price inflation, which stood at 3.5 percent in the July-October period, is "expected to increase in the coming months," the bank said, citing higher international oil prices and imposition of regulatory duty on non-essential import items.

However, the bank said, while taking into account these effects, inflation was still expected to fall inside the range of 4.5-5.5 percent projected at the start of the fiscal year.

With foreign reserves dwindling, some analysts say Pakistan may need an International Monetary Fund 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 the pressure on the current account, but the finance ministry slapped down the idea.

Foreign donors have long said Pakistan needs to implement structural reforms to improve its trade competitiveness, which would help rebuild its foreign exchange reserves and external account pressure.

Analysts doubt any meaningful reforms will be passed before the next general elections, due in mid-2018.