Rising inflation and treasurer’s doctrine

Written by The Frontier Post

The State Bank of Pakistan’s Monetary Policy Committee (MPC) has decided to raise the policy rate by 150 basis points to 13.75 percent. The committee adopted new monetary measures together with much needed fiscal consolidation actions to ensure a more sustainable pace of the national economy. According to details, the interest rates on EFS and LTFF loans have also been raised, while these rates will be linked to the policy rate in order to incentivize exports of the country. The MPC has emphasized the urgency of strong and appropriate fiscal consolidation to complement new monetary actions, which help alleviate pressures on inflation, market rates and the external account in the future.

The state bank of Pakistan jacked up interest rate 150 basis points to 13.75 percent for the next six weeks to curb rising inflation and ignite a stalled growth rate in the country. According to the Central Bank, the recent measures of the regulator would be effective in balancing the equation between inflation and the growth. The Bank was of the view that the external pressures on the country’s economy remained elevated and the inflation outlook had further deteriorated due to both domestic and international factors.

It was said that the government’s expansionary fiscal policy coupled with recent energy subsidy packages and lingering uncertainty regarding future fiscal strategy of the government has exhausted the national currency in respect of exchange rate. Hence, the regulator had left with limited options in absence of controlled exchange rate to tackle the situation. Currently, the Central Banks around the globe including the United States, the UK, India and other nations have used the same recipe of massive increase in interest rate to support their national economies.

In fact, the recent ban on import of luxury items coupled with economic, monetary and administrative measures would help the government to mitigate the disturbing effects of the global economic crisis. Therefore, the government must put a cap on its non development expenditures, introduce targeted subsidies, implement austerity measures in public offices and avoid commencement of politically motivated development projects to save valuable reserves of the country.

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The Frontier Post