Further cut in policy rate

In another auto-correction, the central bank has drastically reduced its benchmark policy rate by 250 basis points, hoping for a new thaw with a struggling economy on the premise of inflation taking a dip in October and consumer behaviour posting positive vibes. This is the third consecutive rate cut in the last several months and goes on to establish that the government is determined to maintain a tight monetary policy. The fresh cut has brought down the statistics from 17.5% to 15%. A number of factors emboldened the SBP to opt for another rate cut, like a decline in food inflation, favourable global oil prices and absence of expected adjustments in gas tariffs and PDL rate.

Though these factors have led to a pace of disinflation in recent months, the point is that energy prices are on the rise and are proving to be counter-productive in terms of growth and furthering exports. Apparently this is why the central bank's MPC assessed that the near-term inflation may remain volatile before stabilising within the target range in the next few weeks and months. The SBP is likely to continue with a positive real rate in the range of 300 to 400 bps in the medium term in order to absorb any external and budgetary shock.

The onset of the IMF programme has acted as a catalyst in ushering in renewed hope as many other external creditors too are now willing to repose their trust in the economy. While the economy sits at the cliff of indispensable reforms, especially in terms of currency regulation and macro-economic adjustments, the depreciation of the rupee is an issue that will keep indicators in a jittery territory. That can only be overcome if the monetary policy is export-driven and production is customised to make it profitable and indigenised.

This micro-management of currency, banking and economy is in need of sustainability; and putting the house in order in terms of political stability is a sine qua non. Creating jobs and doing away with the sense of disgust is the way to go as economic growth rekindles a new hope-line of self-confidence.