By Faiza Tehseen ISLAMABAD, Feb. 18 (INP-WealthPK): Reflation is stimulating growth after an economic recession by relaxing monetary policy, injecting money in the market, reducing taxes and creating employment to boost spending. Reflation aims to stop deflation—the general decline in prices for goods and services that occurs when inflation falls below 0%. It is a long-term shift, often characterised by a prolonged reacceleration in economic prosperity that strives to reduce any excess capacity in the labour market. Most economies turned to reflation after the peak of Covid-19 pandemic to revive the sagging growth. However, there is a need to keep in view the ground realities or market trends before going for reflation. After the pandemic-driven stagnation, reflation-based monetary policy has acted like oxygen for Pakistan’s economy as the government allocated subsidies to many sectors to generate growth and employment. Subsidies, however, do not benefit and affect all socioeconomic sectors. Sustainable economic uplift is only possible when all the socioeconomic sectors are in proper working order. Often, a reflationary policy involves decreasing taxes, lowering interest rate, increasing money supply, launching capital projects and increasing people’s spending power. To adopt reflation as the tool for reviving the economic growth, it is important to apply it carefully and skilfully to achieve the required results and avoid any fiscal issues. Market trends and economic analysis show that reflation is the most refined form of controlled inflation. People largely benefit from reflation as they have to pay less taxes. During reflation, long-term projects like infrastructure are funded by adopting large CAPEX (capital expenditures). Reflation leads to positive indicators like economic stability, employment, tackles deflation, lowers interest rate and increases money supply due to economic expansion and increase in manufacturing/production index. However, during reflationary period, the government runs the risk of resultant fiscal deficit because during deflation, economy is not well-fertilised to create new job opportunities. Reflation is a highly sensitive matter to apply. Extraordinary research and expert analysis are the basic keys to approve and apply the mechanism. If it keeps the great clarity regarding the stimulation of demand and consumer spending, it is a positive trend. On the other side, if it gives rise to inflation, then it is not a good omen for an economy. The ‘reversal interest rate’ is defined as the rate at which accommodative monetary policy reverses its intended effect and becomes contractionary for lending. The idea is that excessively low monetary policy rates lead to a reduction in the value of banks’ capital, which reduces bank lending. The Fed lowers interest rates in order to stimulate economic growth. Lower financing costs can encourage borrowing and investment. However, when rates are too low, they can spur excessive growth and perhaps inflation. ... Rate increases are used to slow inflation and return growth to more sustainable levels.