Central Bank’s prudent regulatory measures

The State Bank of Pakistan (SBP) has maintained its policy (interest) rate at 15 percent for the next two months. The SBP’s Monetary Policy Committee (MPC) noted that there had been a continued deceleration in economic activity along with a turndown in headline inflation and the current account deficit over the past months, while the recent floods have altered the macroeconomic outlook of the national economy.

The MPC was of the view that inflation could be higher and more persistent due to the supply shock to food prices, while this additional impetus does not spill over into broader prices in the economy. The growth prospects have weakened, which should reduce demand-side pressures and suppress underlying inflation in the future. Accoridng to the Bank, a notable moderation in economic activity has become more visible and entrenched, which indicates that the tightening measures implemented over the last year are gaining traction. Owing to these reasons, the MPC was of the view that the existing monetary policy stance strikes an appropriate balance between managing inflation and maintaining growth in the wake of the floods and needs to be carefully calibrated going forward in the coming months.

The national economy is facing severe challenges due to political uncertainty.

Due to the prevailing uncertain geopolitical and economic landscapes in the world, central banks across the globe had raised interest rates and tightened their regulatory policies to support their economies. While Pakistan’s economic woes had increased many folds due to recent floods and it has become essential for the regulators to take a prudent course to tackle the colossal challenge, a high-interest rate is the best option to reduce economic risk in the highly volatile contemporary world. Presently, a safe passage through this catastrophic phase is the top priority of the nation, and all stakeholders need to adopt a cautious and riskless approach to sail through it.