Monetary policy has been tightening over the past two or three years in Pakistan to control inflation, which is projected to come down, but more work needs to be done on the demand and supply side.
This was stated by Jason Wu, Assistant Director, Monetary and Capital Markets Department of the International Monetary Fund (IMF) while addressing a press briefing.
Replying to a question regarding the prescription being given by the major organizations, all the transnational institutions, more about increasing the interest rates and its impact on inflation, Wu stated that both the supply and demand side contribute to inflation. So in that sense, policy is needed on both sides. In the case of Pakistan, monetary policy has been tightening over the past two or three years to control inflation.
Inflation is projected to come down, but more work needs to be done. And that includes on the demand side; fiscal consolidation needs to be continued. But also on the supply side, including things like the reform of the energy sector and state-owned enterprises. Many economies in the frontier space face similar challenges as well. Fund staff continues to engage with Pakistan on this issue, Wu added.
Tobias Adrian, Financial Counselor and Director, Monetary and Capital Markets Department, IMF said that Pakistan is in a program. There are really macro challenges, which include the financial sector and central bank policies but also broader macro and fiscal issues. The adjustments oftentimes take some time to take hold, Adrian added.
The Fund official further stated that some countries now have both upside and downside risks to inflation. Other countries have more upside. Others have more downside risk. The key message that the Fund has to central banks is to make sure that inflation is heading durably back to target. Around the world, we do see communication by central banks that expect to cut.
“Some central banks have already started to cut. Among advanced economies, Switzerland started to cut. Emerging markets have started to cut much earlier. Brazil, and Mexico are good examples here. But the key is to make sure that we are durably back to inflation targets and not to sort of cut prematurely. That is really a key message”, Adrian added.
