Daily Times

KARACHI: Predicting that the actual inflation would be lower than the target rate of 6 percent in FY17, the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 5.75 percent, a stance the central bank has maintained since May 2016.

Addressing a press conference at SBP central office, Governor SBP, Ashraf Mahmood Wathra said that the average inflation clocked in at 3.9 percent during the first half of the year current fiscal year, lower than the earlier projections due to the smooth supply of perishable items, a stable exchange rate, and the government’s absorption of the impact of higher international oil prices.

The current trends suggest that the actual inflation would be lower than the target rate of 6 percent in FY17, he predicted.

Growing CPEC-related imports, decline in exports, absence of the Coalition Support Fund, and a slowdown in remittances has pushed the current account deficit to $3.6 billion in the first half of FY17, from $1.7 billion in the same period last year. This higher deficit was financed by an increase in bilateral and multilateral funding along with acceleration in investment flows. Overall surplus in the balance of payments stands at $0.2 billion in the first half of the current year. Going forward, with the aforementioned risks to the external sector, the need of financial inflows would grow further, SBP governor stated.

A sizeable net retirement of government borrowing to scheduled banks and an increase in bank deposits helped increase private sector credit. Benefiting from the historic low in interest rates, private businesses are actively borrowing from the banking sector for upgrading and expanding their business processes, Wathra noted.

Private sector borrowed Rs 375 billion in first half of FY17 as compared to Rs 282.6 billion in the corresponding period of last year. Loans for fixed investments increased by Rs 134.1 billion in the first half of FY17 compared with an expansion of Rs 83.8 billion in the same period of last year. Demand for consumer financing, especially for auto loans, also gathered pace during the first half of the year, he informed.

Healthy credit expansion, along with higher production of Kharif crops, visible improvements in energy supply, and upbeat business sentiments signal recuperating real economic activities. Large-scale manufacturing grew by 3.2 percent during the first five months of the current fiscal year and further increase is expected on account of growing infrastructure spending and recent policy support for export oriented sectors, SBP Governor said.

Replying to a question about remittances’ current trend, Governor Wathra said that economic conditions of Middle Eastern countries and tough measures by the USA government under money laundering laws have affected remittances inflows. “Despite such impacts the remittances will be $20 billion by the end of current fiscal year, FY17”, Wathra contented.

About swelling current account deficit, governor said that declining exports and non-payment of funds under the Coalition Support Fund have negatively impacted the current account balance of Pakistan. “Pakistan was expecting $1.1 billion under coalition support fund”, he noted.

The governor said that the actual imports increase would be only 1.2 percent if the imported capital goods/machinery is employed to enhance production for export purposes.

Responding to a question about the stock of national debts, Governor Wathra informed that the current debt stock, both national and foreign, stands at Rs 28.9 trillion including Rs 7 trillion foreign debts.

Wathra said that the central bank was in the process of adding advanced features in the currency notes and for this purpose services of a consultant have been hired.

SBP Governor again dispelled the impression that Rs 5000 note was being withdrawn from the circulation. “We are in touch with law enforcement agencies to stop smuggling of dollars from Pakistan”, he responded.