KARACHI, March 30: The State Bank has expressed concern over rising inflation in the country but appeared satisfied with the momentum of economic growth which it hopes will remain around seven per cent this year.

“Inflation must be contained in order to bring real returns to savers significantly positive,” said SBP’s second quarterly report for the fiscal year 2006-07 issued here on Friday.

Currently, the average inflation, measured by the Consumer Price Index (CPI), stood at 7.7 per cent as against the 6.5 per cent target for the fiscal year 2006-07.

“Curtailing inflation will encourage domestic savings to rise from the current low levels and lower country’s dependence on potentially fickle foreign investment.

“Average inflation for the FY07 is forecast to remain in the range of 6.7-7.5 per cent, well above the annual target,” the report added.

The SBP projections indicate that the FY07 real GDP growth is likely to remain in the range of 6.6-7.2 per cent, close to the annual target of seven per cent.

The SBP was critical of government’s huge expenditure and said that while the fiscal deficit was expected to be within the target, it was significant that aggregate expenditure growth had been much greater than budgeted, and the growth of deficit had been contained only due to extraordinarily strong direct tax receipts.

Expenditures grew 23.5 per cent during Jul-Jan 2006-07, well above the annual target, but were matched by an unexpected 61.9 per cent rise in direct tax collection which compensated the decline in import-based taxes as import growth subsided.

However, a slowdown in the export growth needed to be examined, the report said.