KARACHI (AFP) — Pakistan's central bank on Tuesday raised the discount rate by one percent in a bid to fight soaring inflation strangling the country's economy.
Inflation rose to 13 percent -- 5.5 percent more than targeted-- while food inflation reached a record 32 percent this year, Governor of the State Bank of Pakistan, Shamshad Akhtar, told a news conference.
After the one percent increase, the discount rate -- which is the interest rate on money lent by banks to investors -- now stands at 13 percent, she said.
Describing 2008 as an "extremely difficult" year for the global economy, she said rising oil prices "hit every market."
The impact on Pakistan was severe, Akhtar said, adding that the country's oil import bill rose to 10.5 billion dollars this year, more than 40 percent higher than last year.
Oil and foodstuffs make up 40 percent of total imports.
The exchange rate also remained under pressure and the foreign exchange reserves depleted from 16.4 billion dollars to 10.4 billion.
Akhtar warned that government borrowing, which reached a record 690 billion rupees (about 10 billion dollars), was unsustainable for the bank and that it was pushing up inflation.
"We cannot stay away from the hard decisions, although they are unpleasant and unwelcoming," she said. "The government should retire its debt from the bank on a quarterly basis."
A depreciation of nearly 11 percent in rupee versus dollars parity has also affected exports and boosted imports. High food inflation will continue to pose challenges to Pakistan's economy, Akhtar said.
The economic troubles have piled on to the challenges facing the new government since it took power after trouncing allies of President Pervez Musharraf in elections in February.
Anger is mounting among the country's 160 million people over shortages of food and other commodities, coupled with frequent power outages, factors that contributed to the defeat of Musharraf's backers.
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