Consumer price inflation continued a downward trend during most of
the first 8 months of FY2013 as food price inflation decelerated. However,
year-on-year inflation at 7.4% in February 2013 was higher...
than the year
low of 6.9% in November 2012 as food prices moved higher (Figure 3.20.9).
Nevertheless, food inflation in this fiscal year is much slower than a year
earlier, reflecting improved supply. Core inflation, excluding food and
energy, also improved but, at 9.6% in February 2013, remains stubbornly
high with many of its subcomponents staying in double digits, reflecting
entrenched inflationary pressure in the economy. However, with slower
growth in food and energy prices, inflation is expected to average 9.0%
in FY2013, or 2 percentage points lower than in the previous fiscal year.
On the expectation that there will be no substantive improvement in the
country’s fiscal and energy imbalances in FY2014, inflation is expected to
edge up to 9.5%.
Easing inflation early in FY2013 prompted further reductions in the
central bank’s main policy rate by a total of 250 basis points, bringing
it to 9.5% in December 2012 (Figure 3.20.10). While banks’ weighted
average rate on new loans in this period fell by about 200 basis points
to 11.3%, overarching constraints coming from energy shortages and
other uncertainties, such as law and order issues, will limit the impact of
interest rate reductions on investment and business conditions in general.
A modest increase in lending to private businesses in the first 7 months of
FY2013 was mainly for working capital, with the bulk of lending going to
Sources:State Bank of Pakistan. http://www.sbp.org.pk;
CEIC Data Company (both accessed 21 March 2013)
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