Monetary outlook for year 2020-21

Engineering Post Report

According to the information gathered from official quarters concerned, monetary policy during financial year 2020-21  will mostly focus on revival of the national economy disrupted by COVID-19 pandemic.

Accordingly, in line with credit conditions of the economy,  an appropriate  growth-oriented  monetary policy will be  followed and borrowing limits of the businesses and households can be further  enhanced to encourage business environment.

State Bank of Pakistan (SBP)  will be in contact with the stakeholders for timely measures to address the challenges  of contained  inflation, healthy banking and payments system as well as ensuring financial stability .

Government budgetary borrowing from the SBP  will be discouraged. Moreover, the federal government will gradually reduce SBP stock of net budgetary borrowing. This hopefully will help to keep inflation low and bring it down to the central bank’s medium-term  targets range of 5-7 per cent.

For enhancing  financial inclusion, relevant banking  laws and  regulations will be simplified and reforms will be  introduced to to make banking sector  vibrant. Regular meetings of  Monetary ad Fiscal Policies Coordination Board will also be helpful to review the economic situation in the country and accordingly suggesting appropriate steps for pro-growth and business friendly policies.

The central bank will also maintain  price stability in the economy over the medium term. In order to achieve the medium-term target of 5-7 per cent inflation, SBP will actively follow different strategies, in addition to policy rate. Particularly, SBP will improve ownership of monetary policy among stakeholders through interaction with them. These interactions will thus provide forward guidance regarding the monetary policy  stance to anchor  market expectations.

Accordingly , Governor SBP will also be holding  regular meetings  with the representatives of Chambers of Commerce, exporters,  small scale and other businesses  to update them about the key macroeconomic developments including inflation. The objective of such communication  will go a long way in restoring the investor’s confidence.

Moreover, the sources added, the SBP is also  moving towards adoption of Flexible Inflation Targeting (FIT) framework for which key groundwork has already been completed. However, SBP also plans to further fine-tune  the framework through the framework through discussion process.