Pakistan's central bank holds key rate at 11%, as expected
ISLAMABAD :Pakistan's central bank kept its key interest rate unchanged at 11 per cent on Monday, in line with expectations, as the conflict between Israel and Iran and volatile global oil prices added upside risks to inflation.
The State Bank of Pakistan (SBP) briefly paused its easing cycle in March after cutting rates by 10 per centage points from a record high of 22 per cent in June 2024. The central bank announced another 100 basis-point cut in May bringing the key rate to 11 per cent.
Eleven out of 14 analysts in a Reuters poll had forecast the SBP would hold the rate steady, citing inflationary risks from Israel's recent military strikes on Iran and their impact on global commodity markets.
Headline inflation rose to 3.5 per cent in May, exceeding the finance ministry's projection of up to 2 per cent. The central bank expects average inflation to range between 5.5 per cent and 7.5 per cent for the current fiscal year, which ends this month.
The decision also comes on the heels of Pakistan's contractionary budget, where it cut total spending by 7 per cent and set a GDP target of 4.2 per cent for fiscal year 2025-26.
The government said the $350 billion economy is stabilising under a $7 billion IMF programme, though analysts remain wary of external and fiscal pressures.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
a day ago
- CNA
BOJ to keep raising rates if economy improves, Governor Ueda says
TOKYO :Bank of Japan Governor Kazuo Ueda said on Friday the central bank will continue to raise interest rates if improvements in the economy keep the country on track to durably achieve its 2 per cent inflation target. "Underlying inflation may stagnate due to a slowdown in economic growth, but likely to accelerate thereafter as intensifying labour shortages heighten medium- to long-term inflation expectations," Ueda said in a speech.
CNA
a day ago
- CNA
Slow rate hikes could cause wage-price spiral, BOJ paper says
TOKYO :Hiking interest rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices, the Bank of Japan said in a research paper released this week. The paper's publication on Thursday comes as the central bank faces an increasingly complicated policy environment, with inflation at a more than two-year high and U.S. tariffs fanning economic uncertainty. While the staff papers do not represent the BOJ's official view on monetary policy, they provide hints on key topics of attention within the central bank in setting interest rates. The BOJ staff paper, using data from 2002 to 2024, analysed trends in Japan and Europe - which both rely heavily on imported commodities - to study the extent to which rising material costs led to second-round effects on inflation. In Japan, the pass-through of prices from rising raw materials was more moderate than in Europe, the paper said. The second-round effects were moderate but sustained in both Japan and Europe, it said. "Both in Japan and Europe, the initial effects of high raw material costs were the main cause of inflationary trends since 2020. The second-round effects may have heightened the sustainability of price rises," the paper said. Central banks typically raise interest rates to avoid second-round effects on inflation, or a state in which initial price shocks like higher energy costs trigger a spiral of rising wages and inflation that could lead to a broad-based, persistent inflationary environment. A closer look at Japan's data suggested the BOJ's slow pace of interest rate hikes could be enhancing the second-round effects on inflation, the paper said. Structural changes in Japan's labour market could also be making wages less rigid - or more likely to move flexibly reflecting a tight job market - and enhancing the second-round effects on inflation than in the past, the paper said. The analysis comes amid heightening attention within the BOJ board on how persistent rises in food and raw material costs could affect underlying inflation, and households' perception of future price moves. While uncertainty over U.S. tariff policy has put the BOJ on hold in raising interest rates, Governor Kazuo Ueda has signaled the bank's resolve to keep pushing up borrowing costs if Japan stays on course to durably hit the bank's 2 per cent inflation target. Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2 per cent target for well over three years, keeping it under pressure to resume rate hikes despite economic headwinds from U.S. tariffs.
CNA
a day ago
- CNA
Rice prices double as Japan's core inflation hits 3.7%
TOKYO: Japan's core inflation rate accelerated to 3.7 per cent in May, official data showed on Friday (Jun 20), posing a threat to Prime Minister Shigeru Ishiba's leadership ahead of July elections. Rice prices were more than twice as high as they were a year previously, despite the government releasing its emergency stockpile of the staple grain. Frustration over inflation threatens to deal a blow to Ishiba's ruling Liberal Democratic Party next month, when an election for parliament's upper house is due. Friday's data, which excludes volatile fresh food prices, beat market expectations and was up from the 3.5 per cent year-on-year rise logged in April. Prices rose for a variety of food products, including non-fresh items, ranging from coffee to chocolate. Electricity bills were 11.3 per cent more expensive, and gas fees rose 5.4 per cent. Ishiba has pledged cash handouts of 20,000 yen (US$139) for every citizen – doubling it for children – to help households combat inflation ahead of the July elections. The race is crucial to Ishiba after public support for his government tumbled to its lowest level since he took office in October, which observers say was partly caused by a surge in inflation and soaring rice costs. Rice shortages, caused by a supply chain snarl-up, mean the price of the grain was up 101 per cent in May, compared to the eye-watering 98 per cent rise seen in April. The government began releasing stockpiles in February in an attempt to drive down prices – something it has only previously done during disasters. A mosaic of factors lies behind the rice shortages, including an intensely hot and dry summer two years ago that damaged harvests nationwide. Since then some traders have been hoarding rice in a bid to boost their profits down the line, experts say. The issue was made worse by panic-buying last year, prompted by a government warning about a potential "megaquake" that did not strike. Going forward, US tariffs are expected to weigh on Japan Inc, with economists predicting a slowdown ahead. Intensifying fighting between Iran and Israel was also adding pressure for energy prices to head north, posing a further risk to the Japanese economy. Earlier this week the Bank of Japan kept its interest rates unchanged and said it would taper its purchase of government bonds at a slower pace, as trade uncertainty threatens to weigh on the world's number four economy.
