Director of Monetary Policy Department at the State Bank of Pakistan (SBP) Fida Hussain said that preventing an increase in inflation was the main driver behind the recent monetary policy decision to raise the policy rate by 100 basis points to 17 percent. According to him, the global economy is slowing down and there are signs that several significant industrialised economies may go into recession.

Fida Hussain explained the reasoning for the decision to raise the policy rate by arguing that greater core and food inflation, if allowed to persist, increased the possibility of a wage-price spiral and called for a restrictive monetary policy response. He said that while the SBP is aware of the short-term consequences of monetary tightening for economic activity, it also thinks that reducing inflation now is crucial to maintaining sustained growth in the medium to long term.

He expressed the optimism that the somewhat dropping global commodity prices would be advantageous for the country's imports and current account balance, if they persisted. He also emphasised the necessity for fiscal and monetary policies coordination in order to reduce demand-side pressures during periods of high inflation.

Credit: Independent News Pakistan-WealthPk