Pakistan’s central bank (SBP) today lifted its discount rate by 50bp to 13.0%. The move was a surprise but a rate hike has been the big risk for some time given double-digit inflation and the large over-run on the budget deficit target agreed with the IMF. The discount rate will probably now be left unchanged into 2011, but this crucially depends on Pakistan being able to bring the fiscal position back on track. GDP growth in FY10-11 will likely come in below the current 4.5% government target.
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