Pakistan''s economy should grow at least 7 percent in the year to June 2008, central bank chief Shamshad Akhtar said on Wednesday, despite the political turmoil besetting the nation.
Global trends mean food prices are pushing up headline inflation, but past tightening of monetary policy means the current stance is appropriate and weakness in the rupee is not something to be worried about, Akhtar told reporters in Frankfurt.
"Pakistan now for some years has demonstrated a fairly robust economic growth backed by pretty deep structural reforms. We have found that in 2007, despite political noise, economic growth remains on track," she said on the sidelines of a conference of the Islamic Financial Services Board.
Turmoil linked to the future of President Pervez Musharraf, and uncertainty surrounding elections due on January 8, have slowed the inflow of portfolio investment into the country. Inflation is running well above target, while the current account deficit is high and some economists have questioned the realism of Pakistan''s 7.2 percent economic growth target for the year to end-June 2008.
Asked whether this growth was likely, Akhtar said: "All the preliminary indications are that it would be. There has been a setback to the cotton crop this year, but we''re hoping that it will be relatively limited."
"So 7 percent at least should be manageable, but we need more data to comment further," she said, citing buoyancy in the services sector. Pakistan raised its key discount rate to 10.0 percent, effective August 1, from 9.5 percent. In addition to this surprise move it has taken other steps to tighten the policy stance.
"We''re hoping that should suffice but it all depends on the situation in January when data comes in. But at this point we think that the current monetary stance is adequate to take us forward," Akhtar said.
"Core inflation has been curbed quite effectively. It''s really food prices, and as we know they are being driven by global supply and demand issues," she said. "Like every country we have food prices growing a bit stronger and this is a complication for the inflation rate. But there''s very little monetary policy can do in the short term on food prices." The Pakistani rupee recovered from a three-year low on Tuesday following a central bank decision to decrease the amount of cash reserves that banks have to maintain, but Akhtar said she was not unduly worried about the rupee''s weakness.
"There''s been a little pressure on the exchange rate but nothing to be disturbed about. We had been pushing ... for a little flexibility in the exchange rate. Market fundamentals are driving the Pakistani rupee."
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