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Karachi: Pakistan's central bank cut its GDP forecast for 2007-08 yesterday, putting growth below six per cent for the first time in five years.
State Bank of Pakistan reckoned growth would be between 5.5 to six per cent for the year ending June 30.
The government initially set a 7.2 per cent growth target, but the bank lowered its forecast to six-6.5 per cent in March, citing weakness in large-scale manufacturing and farm output. Earlier last month, a government official said GDP is likely to grow by 5.78 per cent.
The central bank said in its latest quarterly report 2007-08 inflation was likely to average between 11 and 12 per cent, significantly higher than an original target of 6.5 per cent and also above the central bank's March forecast of eight to nine per cent.
April's consumer price inflation stood at 17.2 per cent year-on-year, the highest level since April, 1995, according to the bank.
The bank expected a record current account deficit in the range of 7.3 and 7.8 per cent of GDP for the year. The budget deficit is forecast between 6.5 and seven per cent of GDP against a forecast of four per cent.
The central bank said it will maintain tight monetary policy stance for the time being in its fight to fight inflationary pressure.
"Without continued monetary tightening the inflationary pressures may turn into a wage price spiral," the central bank said.
The central bank said its efforts were "substantially weakened" by an expansionary fiscal policy in the last six months, and the government had to urgently address the growing fiscal deficit as well as diversify its financing away from the central bank.
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