Pakistan springs shock rate rise

Pakistan's economic growth is expected to raise living standards

Pakistan has announced a surprise interest rate increase of half a percentage point, as higher oil and commodity prices feed inflation.

The State Bank of Pakistan said that its main borrowing cost will rise to 9.5% from 9% on Monday.

It is the first time interest rates have risen in 15 months.

Pakistan is South Asia's second-largest economy and its rapid rate of growth, coupled with high energy prices, are proving a concern for many observers.

The central bank wants to slow the annual inflation rate to 6.5% in the year running to 30 June, 2007. In the previous 12 months, it was 7.9%.

"I personally am feeling quite confident that we should be able to contain inflationary pressures with this rise," said central bank governor Shamshad Akhtar.

However, the bank said it would remain vigilant, hinting that there could be more rate increases should the inflation rate not slow.

Analysts said that the higher interest rates were unlikely to slow the economy and they remained confident that Pakistan would still hit its growth target of 7% for the current fiscal year.