Interest rates should come down: SBP chief

[Naveed Yaseen]

KARACHI (March 14 2009): The State Bank of Pakistan Governor Salim Raza said on Friday interest rates should come down over time, given that price rises were trending lower and that core inflation was stabilising, and said that would help the economy. "I think given these trends, its no mystery what is going to happen with interest rates," Salim Raza said in an interview with Reuters.

"In time, interest rates should come down." SBP is due to announce a monetary policy statement next month and there is speculation that the key discount rate could be reduced from 15.0 percent. Pakistans inflation in February rose to 21.07 percent from a year earlier after declining month-on-month for three months, after hitting a record high of 25 percent in October.

But Raza said it was a "one-time" rise and the downwards trend in inflation month-on-month would continue. Core inflation also stabilised and would drift down in the next few months, Raza said. Analysts expect a sizable drop n the March consumer price data due to a high base effect. Inflation shot up three percent between February and March last year.

The rupee which lost 22.12 percent in 2008 is expected to remain stable, the governor said adding that the confidence that the government is serious about inflation and serious discipline would help confidence. "I think this is roughly near about where I expect to see it in the near- and medium-term," Raza said.

Pakistan and the International Monetary Fund agreed to lower the target for the gross domestic growth this fiscal year to 2.5 percent from 3.5 percent but many analysts said even achieving this target would be very ambitious. But the central bank chief was hopeful and said target was achievable and viable.

Analysts say these levels of growth represent a virtual recession for Pakistan, a country of 170 million people with around a third living in poverty. The economy grew by 5.8 percent in the previous fiscal year that ended on June 30, 2008.

"If everything else is adding up towards lowering interest rates, that is supply and demand, general price levels and then perhaps some need to look at the revival of domestic demand, all these things suggest an interest rate cut would probably be the right thing for the economy," Raza said.

http://www.brecorder.com/index.php?id=6137