The clamour rises – Newspaper

Hours after the State Bank of Pakistan (SBP) announced its monetary policy decision that reduced the key policy rate at a percentage point, the business community was in a fuss. They wanted more.

Taking the front in this clamor for faster tariff cuts is the Chamber of the country of Apex, the Federation of Chambers of Commerce and Industry of Pakistan. In an irritable statement issued immediately after the announcement, they proclaimed their “disappointment” with the decision.

“FPCCI demanded a unique and unique stroke rate of 500 basic points,” economic growth and export growth “.

Let’s start with this. Drastic cuts in the policy rate are never a good idea. The only time Pakistan has undertaken such a movement was in the Covid years, and those were a type of unusual event once in the double century. All central banks in the world had responded to COVID blocks with drastic rate cuts to counteract the effects of blockages.

But that movement came with serious consequences, since it fed world inflation in the coming years, even here in Pakistan. Nothing in the current environment deserves use such extreme actions, especially taking into account the extreme danger that such movements bring.

The shallow attempt to drag the SIFC and the prime minister to the matter is quite typical of how the business community in Pakistan operates. It is an attempt to boost a gap between the various decision -making centers in the country to accumulate pressure on the state bank, and more particularly the monetary policy committee, which includes independent economists as their members, to try to influence Your decision. If it is allowed to succeed, these types of attempts can do tremendous damage by turning a technical matter into a policy.

The State Bank is doing a very difficult job at a very difficult time. He has just finished publishing the fiercest inflationary fire in our history.

It is true that inflation, measured by the consumer price index (CPI), is falling. But the statement that accompanies the decision of monetary policy on Monday contained critical warnings to temper excessive reactions to this development.

On the one hand, the SBP says that inflation decreases have touched back It has absorbed at the price level. Second, the SBP notes that the “underlying inflationary pressures” may have “moderate” but “remain high”, which means that the inflation spectrum is still there, stalking under the surface.

It indicates risks that could rekindle inflation once again, including “additional measures to meet the income objective”, which is presumably a wink to possible tax on fuels and electricity considering the weak weak in the collection of custom income that progresses the next review of the fund installation in the coming weeks. “[T]The tax collection deficit has expanded, ”says the statement. “Consequently, a strong acceleration in the growth of fiscal income would be required to achieve the annual objective.”

This is not a good sign because it suggests that the policies that have helped achieve the present moment of stability that the government celebrates rightly may have followed its course. In the future, new changes will be required, such as a strong expansion of the tax base to generate new income. And the moment of stability is resting on a narrow hanger, because the tax deficit may be contained, but “achieving the objective for the primary balance would be a challenge,” says the statement.

Good news in the declaration refers to the external sector, which faces less risks than the fiscal side, according to the declaration. Most of the debt service payments for the fiscal year have been made, exports show strong growth (which is the FPCCI statement that high interest rates serve as a drag for the growth of exports), like remittances.

But imports have grown even faster, and although the statement does not stop in the mark of this as a potential risk, our own history is witnessing the fact that every time the economy arises from a hard stability period under a program From IMF, the commercial deficit, the commercial deficit quickly exhausts the reserves that had been built with so much sacrifice during this period. With regard to the economy, nothing would be more catastrophic than repeating that story once again.

The State Bank is doing a very difficult job at a very difficult time. He has just finished publishing the fiercest inflationary fire in our history. This is not exaggeration. In all the inflationary episodes that our country has lived, in the seventies, in the late 1980s and early nineties, and the nineties, never before, the CPI is triggered with the ferocity it made when it reached a peak of 38 percent in May 2023. Never before has the exchange rate seen the type of volatility it saw in recent years, when the dollar value tripled in three years.

It is true that much of the fault of why this happened: inflation and devaluation (which were part of the same phenomenon), is based on the SBP itself, which showed an almost reckless heat in pumping growth through Fugitive impression in the Covid period and beyond.

The reason for that imprudence was simple. An excessive governor of the state bank at that time thought that he could benefit by forcing the cheap liquidity demands of the business community. In the course of doing so, he turned on the fiercest inflation that the country has seen, and quickly made his departure when his term ended, leaving his successor to make all the difficult decisions to handle the situation.

That job has now been done. Finally, after many years, the State Bank has the type of leadership it needs. This is not the time to guess them, much less go back the very close profits they have delivered.

The writer is a business and economy journalist.

khurram.husain@gmail.com

X: @khurramhusain

Posted in Dawn, January 30, 2025



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *