KARACHI: Pakistan’s central bank on Saturday announced it would keep its key policy rate unchanged at 12 per cent for the next two months in a bid to contain expected inflation in the second half of the 2011-12 fiscal year.

Since the start of the fiscal year last July, the central bank has cut interest rates by 200 basis points, but has kept its policy rate unchanged since October.

The State Bank of Pakistan (SBP) faces greater-than-expected drawdowns in its foreign exchange reserves and higher government deficit financing from domestic markets.

“Against this backdrop, the central board of directors of the State Bank today consider the 200 basis points reduction of policy rate already introduced in fiscal year 2012 to be appropriate and has decided to keep the policy rate unchanged at 12 per cent,” central bank governor Yaseen Anwar said at a news conference.

Mainly because of debt repayments, Pakistan’s foreign exchange reserves fell to $16.69 billion in the week ending Feb 3, compared with a record $18.31 billion in July.

The current account deficit widened to a provisional deficit of $2.154 billion in the first six months of the 2011/12 fiscal year, compared with a surplus of $8 million in the same period last year.

Analysts have expressed concern about a possible balance of payments crisis in Pakistan amid a growing current account deficit, which is likely to worsen in coming months as repayments on International Monetary Fund loans begin in February.

In 2008, Pakistan and the IMF agreed on a 3-year package loan for $11 billion. But the programme was halted in 2010 because of slow implementation of fiscal reforms, and only $8 billion was been disbursed.

Pakistan has to repay about $1.1 billion to the IMF before June 30.

Islamabad opted not to seek a new IMF programme or an extension when the programme expired in 2011.

Anwar also noted the need to contain anticipated inflation.

Pakistan’s consumer price index rose 10.10 per cent year-on-year in January, slightly more than projected. Analysts said they expect it to rise further in coming months as international oil prices rise.

Pakistan’s oil prices are linked with international crude prices, which hovered near six-month highs above $117 on Thursday.