Type to search

Economy News

Inflation To Remain Sky-High For Two More Years: SBP

  • 9
    Shares

ISLAMABAD: The State Bank of Pakistan (SBP) said on Friday that inflation would remain high for at least two more years after a special parliamentary panel questioned the official policy that was making things worse instead of curbing inflation.

SBP Deputy Governor Jameel Ahmad said that inflation would decrease to the central bank’s targeted rate of five to seven per cent after two years. He said this during a meeting of the sub-committee of National Assembly Standing Committee on Finance.

A special panel, chaired by Pakistan Muslim League-Nawaz’s (PML-N) Dr Ayesha Ghaus Pasha, has been set up to fulfill the objective of recommending measures for controlling rising inflation.

Participants of the meeting suggested that the central bank’s wrong monetary and exchange rate policies coupled with weak fiscal policies of the federal government were the main reasons behind the double-digit inflation. Instead of controlling inflation, the government policies have been making matters worse, Pasha said.

She further said that the policy prescription developed by the central bank was defective as it believed that inflation was caused by high demand. On the other hand, committee members and experts were of the view that the country was suffering from cost-push inflation, she added.

According to the SBP deputy governor, the current account deficit would remain around $7.5 billion to $8 billion by the end of the current fiscal year. The deficit projection by the SBP deputy governor was nearly $1.3 billion higher than the International Monetary Fund’s (IMF) estimate of $6.7 billion for the current fiscal year.

READ  Pakistan Is Opening Its Door For Investors. Has Great Scope For Tourism: PM Khan

Meanwhile, members of the sub-committee and three experts invited to identify reasons behind inflation shared similar views on the issue. The committee had invited a chartered accountant Ashfaq Tola, former economic adviser to the Pakistan People’s Party (PPP) government Sakib Sherani and Lahore Chamber of Commerce and Industry President Almas Hyder.

The deputy governor admitted that the current trend of inflation was caused by existing monetary policies, fiscal policies and administrative decisions. Nevertheless, he failed to give satisfactory answers to the committee when asked how the central bank planned to contain cost-push inflation with demand-curbing policy measures.

Ahmad could also not answer the question raised by Tola about the amount of dollars pumped by the central bank into the market to bring down the exchange rate from Rs160 to a dollar to around Rs157.

Moreover, members and experts also raised questions on the logic behind five per cent positive real interest rate which, according to them, was restricting economic growth and increasing unemployment.

It merits mention here that core inflation in August was 8.2 per cent while the SBP’s interest rate was 13.25 per cent, thus resulting in over 5 per cent positive interest rate.

The deputy governor further said that inflation was one factor in determining the policy rate and the rate was now set keeping in mind the future trends of inflation.

On this, Pasha said, “The policy rate is far too high and a one per cent point increase in interest rate brings down investment by 0.7 per cent.”

Speaking on the occasion, Tola said, “It is high time for the government to decide whether the economy leads taxation or taxation leads the economy”. IMF policies have regulated the economy but their cost is huge, he added.

READ  FIR Lodged Against Teacher Who Made Pre-School Student Eat Grass As Punishment

Meanwhile, sub-committee member Hina Rabbani Khar recommended that the tight monetary stance adopted by SBP in the past 20 months should be urgently reviewed.

Tags:

Leave a Comment

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

Comment moderation is enabled. Your comment may take some time to appear.