Pakistan central bank holds rates at 5.75 pct, cites low inflation

KARACHI, Pakistan (Reuters) - Pakistan's central bank held its main policy interest rate steady at 5.75 percent on Saturday, the bank's new governor said, citing low inflation expectations and the gathering pace of economic activity.

Tariq Bajwa, who was appointed earlier this month, predicted consumer inflation to track around 4.5 to 5.5 percent for fiscal year ending in June 2018.

"This projection is explained by lower than anticipated increase in international oil prices," Bajwa said in a press conference in the city of Karachi.

Pakistan's economy is heavily sensitive to global oil prices, partly as many of the country's energy plants use furnace oil to produce electricity, and low oil prices are seen helping maintain macroeconomic stability.

Pakistan has maintained the record-low rate at 5.75 percent since May 2016, and analysts do not foresee major changes any time soon.

Bajwa's appointment as the governor of the central bank has stoked concerns the central bank's independence is being eroded. Bajwa has worked closely with Finance Minister Ishaq Dar, who was infuriated by the bank's decision to allow the rupee to devalue.

Pakistan's $300 billion economy has made vast strides since a balance of payments crisis forced Islamabad to seek help from the International Monetary Fund (IMF), with growth in 2016/2017 hitting 5.3 percent, its fastest pace in a decade.

Bajwa said the economy remains in an "expansionary phase".

But the IMF has recently warned that the macro-economic gains made during 2013-2016 have "begun to erode" and pose a risk to economic outlook.

The fund has singled out Pakistan's ballooning current account deficit as a source of concern. The deficit hit $12.1 billion in 2016/2017, widening 148 percent on the previous year, while foreign exchange reserves have been falling.

But Bajwa said the balance of payments (BoP) issues that have dogged Pakistan in the past will be kept under control.

"For the time being the overall BoP is expected to stay at manageable level in FY18," Bajwa said.

(Reporting by Syed Raza Hassan; writing by Drazen Jorgic; Editing by Shri Navaratnam)