Pakistan inflation slows in June, easing pressure for interest rate rise

Pakistan’s inflation eased in June, reducing pressure on the central bank to raise interest rates. Consumer prices rose 13.13 percent from a year earlier, slowing from a 13.23 percent gain in May, the Bureau of Statistics announced in Islamabad today. The median of nine estimates in a Bloomberg News survey was for a 13.70 percent increase.

The State Bank of Pakistan has kept its discount rate unchanged this year at 14 percent, already one of the highest in the world, to support economic growth. Pakistan’s $162 billion economy, sapped by terrorism and floods in 2010, probably expanded 2.4 percent in the year ended June 30, slower than an earlier target of 4.5 percent, the government estimates.

“Inflation is showing no real sign of abating,” Suleman Akhtar, an economist at Foundation Securities Ltd. in Karachi, said before the report. “Raising rates further would be tough, given the weakness in economic expansion.”

The central bank has called for a tight fiscal policy to ease inflationary pressures and signaled a further increase in borrowing costs will undermine economic expansion.

It raised rates in three consecutive meetings from July to November.

Government borrowings have surged 74 percent to 685.3 billion rupees ($8 billion) since July 1, according to the central bank.

Pakistan’s government last month pledged to cut the budget deficit to a seven-year low of 4 percent of gross domestic product in the year ending June 30, 2012, from 5.7 percent of GDP in the previous 12 months.