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October 18, 2019

Pakistan must ‘balance risks’ of slowing economy: Reza Baqir

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October 18, 2019

WASHINGTON: State Bank of Pakistan (SBP) Governor Reza Baqir said on Thursday there is a need to balance risks to growth and inflation.

In an interview with Bloomberg, Reza Baqir said that Pakistan must balance the risk of a slowing economy with its desire to lower the inflation rate, signaling an extended pause in the interest rate-hike cycle.

The “balance of risks” is shifting as the pace of economic growth slows, Baqir said in the interview in Washington. The South Asian nation currently has among the highest real rates -- that’s adjusted for inflation -- in Asia after more than doubling borrowing costs to 13.25 percent since the start of 2018.

The State Bank of Pakistan last month kept interest rates unchanged for the first time in more than a year after inflation, then showed signs of steadying following a change in calculation methodology. Consumer prices have since accelerated above 11 percent, even as economic expansion is seen slowing.

The Asian Development Bank (ADB) lowered its fiscal 2019 growth forecast for Pakistan to 3.3 percent from 3.9 percent previously, amid a broader slowdown in the global economy. That’s lower than the central bank’s projection of 3.5 percent growth in the full-year ending June 2020, and compares with a 5.5 percent expansion in 2018.

Inflation outlook didn’t change enough in September to merit an interest-rate cut, but inflationary pressures will probably recede in coming months.

Baqir said in a presentation at the Institute of International Finance’s annual meeting that devaluations make the exchange-rate more market-based. Pakistan must raise its savings rate to escape the endless cycle of International Monetary Fund deals.

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