Policy rate: Balancing inflation, growth a difficult task

Inflation, govt borrowing to be deciding factors in monetary policy.


November 28, 2011

KARACHI: The State Bank of Pakistan (SBP) will announce its monetary policy for the next two months on November 30, a central bank official said on Monday.

The central board of directors of SBP will meet in Karachi to approve the policy and the meeting will be chaired by Governor Yaseen Anwar.

“Balancing inflation and growth considerations through monetary policy alone is a difficult task. Year-on-year inflation in September came down to 10.5% from 13.3% in June, though month-on-month inflation is still more than one per cent on an average,” said a private sector banker while referring to SBP statistics.

The SBP’s decision whether to reduce its policy rate for the next two months would mainly depend on Consumer Price Index (CPI) inflation and government borrowing.

Banking sector analysts said that inflow of worker remittances may serve as a bridge for central bank officials to work on a solution to the pressure on foreign exchange reserves and low credit demand from the private sector.

Moreover, the impact of floods in Sindh continues to haunt the economy with no respite for the industries as well as consumers who matter much to retail banking and its growth, a source at the central bank said. “Efforts to balance inflation and economic growth through monetary policy would be a difficult task,” he pointed out.

Published in The Express Tribune, November 29th, 2011.

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