State Bank of Pakistan – File Photo

KARACHI: Pakistan's central bank said on Wednesday it will keep its key policy rate unchanged at 12 per cent for the next two months. The State Bank of Pakistan had cut the rate by 150 basis points to 12 percent on Oct. 8 to promote economic growth.

“A reassessment of (the) latest developments and projections indicate that macroeconomic risks have somewhat increased during the last two months,” the SBP said in a statement.

In October, Pakistan's consumer price index rose 11 per cent from the same time last year, and still shows signs of inflationary pressures.

“Thus, while the average inflation may settle around the targeted 12 per cent for fiscal year 2011/12, it is uncertain that inflation will come down to a single digit level in fiscal year 2012/13,” said the central bank.

Pakistan is targeting average inflation of 12 per cent in the  year ending June 30 and of 9.5 per cent in fiscal year 2012/13. There is also concern on the external front as the current account deficit stood at $1.6 billion in the July-Oct period, compared with $541 million in the same period last year.

“The earlier comfortable external current account position for FY12, which helped SBP in lowering its policy rate, has become less benign,” said the central bank.

The State Bank of Pakistan's foreign exchange reserves have also declined, to $13.3 billion at end-October compared with $14.8 billion at the end of June.

The rupee also continued its slide for a third day on Wednesday with increased import payments, negative sentiment about regional currencies and a bleak outlook for the country's economy driving it to a record low of 88.74 to the dollar.

Analysts polled by Reuters earlier this week were split over whether the central bank would cut interest rates by 50 basis points or keep it flat.