Submitted by: Submitted by noreen
Views: 273
Words: 1402
Pages: 6
Category: Business and Industry
Date Submitted: 04/11/2011 10:05 PM
STATE BANK OF PAKISTAN
Page 1 of 3
MONETARY POLICY DECISION 26th March 2011 Despite a recent improvement in the external current account, restrained government borrowings from SBP and stable financial markets, the focus must remain on addressing the structural fiscal weaknesses and reducing inflation to provide a sound platform for sustainable economic recovery in FY12. Although some measures have been announced to contain the fiscal deficit of FY11 and inflation has eased somewhat, more work is required to build on these initial efforts by maintaining progress on comprehensive tax reforms, transparent rationalization of subsidies, and the development of a forward-looking debt management strategy. This will require support from across the political divide and from other state and civil society institutions to ensure their smooth implementation. These measures would help check the level of government borrowings from the banking system, creating space for the private sector and lowering their borrowing costs thereby supporting the utilization and expansion of the economy’s productive capacity. Initiation of these reforms has become critical since private and public sector investments are falling while total debt is rising sharply and expectations of high inflation are becoming entrenched. The decline in year-on-year inflation from 15.5 percent in December 2010 to 12.9 percent in February 2011 can be attributed to three factors. First, a gradual dissipation of the effect of the flood on food prices; second, an incomplete pass-through of high international oil prices to the domestic market and a smaller adjustment in electricity prices than required by the projected size of the power sector subsidy; and, third, a reduction and thereafter containment of the stock of government borrowings from SBP to around Rs1290 billion (on cash basis). The future path of inflation would be contingent upon the policy stance adopted with respect to the last two factors. In addition,...