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Monetary Policy Experience of Pakistan

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  • Hanif, Muhammad Nadim

Abstract

Using monetary policy rate and/or changes in certain liquidity ratios, State Bank of Pakistan influences cost and/or availability of money and credit in the country to achieve (government announced) inflation target without being prejudice to real economic growth target. Earlier, SBP had been following monetary aggregate targeting to achieve its objectives. Reserve money had been used as an operational target. After weakening of broad money growth and inflation relation (as a result of financial sector reforms and restructuring), SBP transferred the operational target to the overnight money market repo rate. Various monetary conditions indicators are used to decide on the direction and magnitude of monetary policy stance. Budget deficit (with its financing mix), money supply (with its composition), local currency prices of imported goods, wheat support price, and expected (higher) inflation play an significant role in generating inflation while real income growth, and (international trade) openness help dampening it. Inflation in Pakistan has been found equals to rate of broad money growth minus the real output growth which simply shows inflation in Pakistan has mainly been a monetary phenomenon. Monetary policy has provided stable background for the economy as we saw standard deviations for inflation and broad money growth to be same during 1951-2010. Financial sector reforms and restructuring (after end 1980s) helped lower the (broad money growth and) inflation volatility in the country.

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  • Hanif, Muhammad Nadim, 2014. "Monetary Policy Experience of Pakistan," MPRA Paper 60855, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:60855
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    References listed on IDEAS

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    Cited by:

    1. Zafar Hayat & Muhammad Nadim Hanif, 2020. "Assessing the Role of Money versus Interest Rate in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 101-114.
    2. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2018. "Does inflation bias stabilize real growth? Evidence from Pakistan," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1083-1103.

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    More about this item

    Keywords

    Monetary Policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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