Inflation May Force Pakistan To Raise Rate Soon: Capital Economics

The State Bank of Pakistan is likely to come under pressure to tighten its discount rate either in March or in May to bring inflation back under control, Capital Economics senior economist Kevin Grice said Monday.

Over the weekend, the central bank left its key policy rate unchanged at 14%. The economist said the decision was surprising given that the country is facing inflation above 15%.

"We believe that the SBP will conclude in coming months that this time is not different and that the discount rate will have to be increased to help bring inflation back under control," Grice said.

The economist said Pakistan should widen its tax net introducing the revised goods and services tax in order to repair the country's fiscal side.

In the monetary policy statement, the bank said the fiscal deficit and borrowings from the banking system continued to stoke inflationary pressures, impeding economic recovery and increasing the debt burden of the country.

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