Pakistan’s central bank looking for fiscal reforms to deliver

In a move that was widely anticipated, the State Bank of Pakistan (SBP) left its policy rate unchanged

at 14.0% over the weekend. The upcoming FY2011-12 budget and subsequent fiscal developments

will be the key area to watch in determining monetary policy. We believe the policy rate should be

kept on hold or even cut to promote growth. However, there is a significant risk that progress on the

fiscal side goes into reverse later this year, which would likely bring renewed SBP tightening.