According to FPCCI president Mian Nasser Hyatt Maggo, further increases in Pakistan’s Monetary Policy Rate (MPR) could result in stagflation and harm industrial growth. He argued that Pakistan’s economy is less integrated with the financial sector, making the use of the Policy rate for inflation control counterproductive. The Policy Advisory Board of FPCCI released the most recent Monetary Policy Brief, which he based his recommendation on.
FPCCI’s Policy Advisory Board, headed by former Federal Secretary Mohammad Younus Dagha, has released an analysis of the effectiveness of Pakistan’s monetary policy, titled “Assessment of Monetary Policy Effectiveness in Pakistan.” The survey of economists, financial market participants, and industry representatives, as well as the analysis of economic fundamentals, business cycle positioning, and monetary policy, are all used in this paper to shed light on the causes of inflation and the effectiveness of the monetary policy.
That only seven percent of commercial entities actually borrow from the banking and financial system makes monetary tightening for inflation control and management through an increase in policy rate ineffective and limits its effectiveness as a tool, according to this report.
As of November 2021, Pakistan’s core inflation rate was 7.6 percent, which means the country is on the verge of stagflation, according to the report. In September and November 2021, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) increased the policy interest rates by 25 and 150 basis points, respectively. As a result of this, the three-month T-bill cut-off yield increased by 228 basis points to 10.78 percent, creating speculative momentum. These supply shocks, such as an increase in commodity and oil prices that spurred current inflationary pressure, must be taken into account. Massive depreciation of the Pakistani rupee against the US dollar, in conjunction with IMF-mandated measures, has further exacerbated inflation. Despite Pakistan’s negative real interest rate, the gap between policy rates and core inflation there is larger, at 1.2pc, than in India (-1.8pc) or China (0.7 percent).
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