KARACHI, July 28: The State Bank of Pakistan, which is going to announce its monetary decisions on Tuesday, is expected to increase the discount rate from 50 to 100 basis points.

Speculations got strength as bankers said that the discount rate may be increased, but they still feel that the cost of borrowing would be very high while stock trading would face another blow, with a higher interest rate.

The State Bank, which has been tackling dual challenges of inflation and a balance in supply of credit, is yet to indicate its plan.

However, bankers having insight about central bank’s working in an economy, like Pakistan, were of the firm view that the SBP would further tighten its monitory policy by increasing the discount rate from 50 to 100 basis points.

“In the wake of high inflation, like 20 per cent, there is no option for the State Bank except to further tighten the monetary growth,” said a senior banker.

Most of the analysts reached to the conclusion that the benchmark interest rate was going to be increased.

“We have no inside information but our discussions with the market experts and others directly related to monetary affairs convinced us that the discount rate will be increased,” said Mohammad Imran, Research Head of First Capital Equities.

His analysis showed that the discount rate could be increased by 100 basis points. The prevailing discount rate is 12 per cent.

Economists and analysts said the newly-elected government did not stop borrowing from the State Bank. In fact, it increased borrowing which destroyed SBP’s efforts to get an effective control over monetary expansion and domestic assets.

The net domestic assets of the banking system grew by Rs940 billion during the year 2007-08 ended on June 30 and was almost triple than the last year.

However, the main reason for a record growth in the domestic