WEB DESK: The Monetary Policy Committee of SBP, met on last Saturday and decided to keep the State Bank of Pakistan’s policy rate unchanged at six (06) percent.
The Monetary Policy Statement issued later in the day justified the MPC’s decision. If this statement is read with the press conference held by the visiting Director of the International Monetary Fund, the decision to hold the lending rate at the present level does make sense and those proposing a change appear to be out of touch with reality. In fact, the data justifies a slight increase in rates but that would have hurt the present stability in the banking sector.
The MPC was told that all expected inflows of foreign currency (dollars) would come from multilateral or bilateral official sources. And, that none were expected from the private sector. SBP experts need to tell the decision-makers what needs to be done to overcome this obstacle? Will the differential in dollar deposit rates and rupee deposit rates be enough or will it need to be expanded? Similarly, what kind of change is needed in the present oil and gas policy to encourage more exploration to enhance domestic sources?
Instead, the SBP choose to repeat the mantra of the government that macroeconomic stability has been achieved and declared that there was “improvement in the law and order situation.” And, that the “China-Pakistan Economic Corridor-related investments bode well for future FDI and a decline in receipts exports was worrisome.” On the other hand, the Fund staff was quite clear that PKR was overvalued and its parity needed to be adjusted. So SBP is required to tell the nation if it is not so. It should also have stressed that the dollar parity was dependent on flows with no SBP intervention in the market other than addressing the volatility.
While praising revenue collection efforts, SBP perhaps needs to ascertain the negative consequences of the present tax policy on growth, industrialisation and job creation. It would be worthwhile to redress the consequences of inequity in our tax regime which is adversely impacting the cost of doing business or consolidation of businesses. We have failed, despite being under the Fund programme, in documenting the economy; and we made no effort to provide a level playing field for domestic manufacturing.
Paying lip service to jobs, investment in manufacturing and claiming incorrectly broadening of tax base is not enough. Concrete action or strategy is required to raise growth which appears to be missing so far. Further, SBP needs to tell the nation their assessment of future challenges. SBP’s monetary policy needs to be forward looking and not just repetition of historical and well-known data. After all, people respect SBP’s assessment as an independent voice. Multilateral institutions and rating agencies, too, often express deep respect for the central bank. SBP should make every possible effort aimed at maintaining this confidence.
Source: Business Recorder