International Monetary Fund IMF criticizes the State Bank of Pakistan (SBP) for the inflation curve.

 by web desk

International Monetary Fund IMF criticizes the State Bank of Pakistan (SBP) for the inflation curve

The International Monetary Fund (IMF) has slammed the State Bank of Pakistan (SBP) for its delayed response in dealing with inflationary pressures from 2020, saying monetary policy has fallen behind the curve. Following the approval of the US$3 billion standby program for Pakistan, the IMF staff report highlighted that the SBP's loose monetary policy conditions and several pauses in the rate tightening cycle had contributed to unanchored inflation expectations, resulting in five-decade high inflation.

To combat persistent inflation, the IMF urged the SBP to maintain a tight, proactive and data-driven monetary policy. The recent hike in key interest rates has been welcomed, but further tightening may be necessary to reduce inflation and achieve the SBP's medium-term inflation targets. The IMF emphasized the need for stronger independence of the SBP and the gradual introduction of refinancing schemes to improve the traction and transparency of monetary policy.

While some authorities remained optimistic about the easing of inflationary pressures, the IMF forecast increased inflation, mainly due to delayed monetary tightening measures. The report said inflation is expected to remain above 25 percent in FY24, with a gradual slowdown in subsequent years.

In the past six months, rising food prices, exchange rate depreciation and a lack of supply have contributed to soaring inflation, which has greatly affected the vulnerable population. The SBP's actions were perceived as lacking clarity, with rate hikes occurring sporadically.

Experts have acknowledged the stubborn nature of inflation in Pakistan, attributing it to various factors such as depreciation, supply shocks caused by natural disasters such as floods, fiscal slippages and delayed responses to monetary policy tightening. To effectively deal with inflation, they suggested maintaining a real positive interest rate and solving fiscal and administrative problems along with a focus on expenditure management, productivity and economic efficiency.

It is clear that controlling inflation requires a comprehensive and innovative approach involving both monetary and fiscal measures to stabilize the economy and protect people's well-being.