Monetary Policy Should Set Inflation Target of 5% Per Annum: Economist

Pakistan needs a central bank and monetary policy which, while delivering its formal mandate of price stability, is considerate of the pressing challenges currently faced by the country, including extreme poverty, widespread joblessness, precarious employment, and burgeoning inequality, said renowned economist, Dr. Sajid Amin.

Speaking at the seminar, “Social footprint of monetary policy in Pakistan,” organized by Sustainable Development Policy Institute (SDPI) in collaboration with the Department of Economics at the University of Karachi on Tuesday, he said that effective monetary policy can also strengthen the soundness of other public policies, such as its counterpart fiscal policy to deliver on social, environmental and economic development.

The autonomy of the State Bank of Pakistan is a step in the right direction which will empower the institution to roll out an effective monetary policy for addressing the social implications of the country, he said. He further added that the central bank, through its independent policy, will ensure better consideration of the side effects of its policies and actions, while it will update its policy tool kit, particularly the monetary policy framework, accordingly.

The autonomy will not only empower SBP, but it will measure the performance of the banking regulations for implementing the new regime of targeting inflation through a forward-looking monetary policy rather than a reactionary monetary policy, said Sajid Amin, who is also a fellow at SDPI.

The central banks in India and Bangladesh are autonomous, hence the performance of these institutions is far better in controlling inflation and its related social implications keeping in similar economic economies in the region.

He further urged that the SBP should deliver on price stability to prevent the purchasing power of the people from being eroded, which could be effectively done through an Integrated Inflation targeting (IIT) regime to address lower and volatile economic growth, high degree of informality, higher inequalities of income, consumption, wealth and employment, and fiscal policy.

In this regard, inflation of 5 percent may be considered for Pakistan because a higher inflation target, such as 7- 9 percent does not commensurate with the welfare aspect of the public, said Dr. Sajid. The controlled inflation could improve the purchasing power of the people, particularly of the poor working in the elementary sector, having a lower nominal wage growth.

Lower inflation will help reduce poverty through greater job opportunities, increased income, and purchasing power on account of higher economic growth. Lower and stable inflation clears the uncertainty present in the market, helping facilitate investment decisions that lead to enhanced economic activity and productivity growth. It will improve real wage growth through lower inflation in the short run and productivity growth in the medium to long run, he said

The SBP must expand its research agenda to explore how its decisions and actions can affect social outcomes, whereas it should convey the impact of its actions to the general public through non-technical communication, which touches upon issues of public policy.

Country Manager of Friedrich Ebert Stiftung, Dr. Jochen Hippler, said the integration of monetary policy into developmental policy is, in itself, a crucial step towards greater community engagement in economic policies.

The monetary policy needs conceptional and institutional reforms to fulfill its legal mandate and social responsibility for the good of the country in a more convincing way, he said.

Senior economist, Dr. Vaqar Ahmed, said any economic policies should not be devised in isolation, but social implications should be taken into utmost consideration for promoting the welfare of the public at large.

He said the non-financial institutions should be involved in the formation of economic policies and regulations which could better advocate the aspects of public welfare in the policies, he said. The Federal Government and partners from the development sector should support the central bank to enhance its capacity building and actions towards the socio-economic development of the society at large.

Assistant Professor at the University of Karachi, Safia Minhaj, said that the collaboration of the think tank and university could play an important role in the capacity building of the students and future leaders.

The liaison between research institutions and universities should be broadened further in the next step by providing internship opportunities to students who will be researchers and economic managers of the country.



Get Alerts

Follow ProPakistani to get latest news and updates.


ProPakistani Community

Join the groups below to get latest news and updates.



>