The Governor of SBP, Yaseen Anwar, explained the difficulties being faced by economy as well as problems in monetary management during a media briefing where he announced the monetary policy for the February-March period.

The SBP expects the average inflation in 2011-12 (FY12) to range between 11 and 12 per cent, implying an uptick during the second half of the current fiscal.

The central bank chief said inflationary pressures had not eased significantly. There were indications of underlying inflationary pressures. For instance, the number of CPI items showing year-on-year inflation of more than 10 per cent was significant and mostly belonged to the non-food category, he added.

The SBP said it had been providing substantial liquidity on an almost permanent basis, but it carried risks for effectively anchoring inflation expectations in the medium term. From July 1 to Feb 9, Rs230 billion had been supplied by State Bank.

The government has so far borrowed Rs444 billion from the banking system, including Rs197 billion from State Bank, an amount considerably higher than the yearly financing requirements of Rs293 billion envisaged in the FY12 budget, said Yaseen Anwar.

The provisional estimate of fiscal deficit for the first half of FY12 (July-Dec 2011), from the financing side, shows a deficit of Rs532 billion, or 2.5 per cent of GDP.

Over the past 10 years, the deficit has always been higher in the second half of a fiscal year by at least 0.5 per cent of GDP.

"Containing the FY12 fiscal deficit close to the government's revised target of 4.7 per cent of GDP would be difficult," the State Bank governor said.

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