Create liquidity to resolve circular debt issue: SBP governor

State Bank of Pakistan (SBP) Governor Yaseen Anwar Monday said that circular debt issue could only be resolved by creating liquidity, not only from the banking system but also from other channels in the country. Elaborating, he said, one solution in this regard was development of corporate debt market in the country, as it would develop institutional bonds for fixed income up to 30 years and secondary market that would absorb the circular debt as liquidity would be made available.
However, it requires some time, he added. He said the issue of circular debt and that debt swapping was a remedial step for short-term fix and it was a right decision. However, the country needed a long-term rather permanent solution to tackle this problem.
Talking to reporters after the prize distribution ceremony of the '8th State Bank Governor Cup-Super Series Inter-Bank Cricket Tournament 2012' here at Bagh-e-Jinnah, SBP governor said that inflation will remain within the prescribed limits. He said the inflation target was fixed for 11-12 percent for the current fiscal and it would remain in the said limit.
About the government borrowing, he said, "The government borrowing target was fixed for the fiscal year thus before the end of the financial year it could go up and down." He said, "It does not matter if the government exceeds limits for a quarter. We have enough time to review the situation." He added that some good inflows were expected during the current fiscal and if these are materialised, fiscal targets could be achieved.
Answering a question, Anwar said that monetary policy did not have immediate effect. It had a lagging period of six months to a year. The central bank reduced discount rate by 200 basis points in the past because inflation was dropped at that time. It provided the SBP space to play with and the central bank stroked the opportunity, he said.
Anwar said as a result of easing out discount rate, credit to private sector witnessed increase. Right now, as the inflation was persistent thus, the central bank did not consider it necessary to reduce discount rate. However, the SBP was consciously monitoring the trend and would respond at appropriate time, he maintained. He said that discount rate would be slashed with cut in inflation.