State Bank of Pakistan (SBP) has taken the decision of raising discount by 50 basis points in the interest of the country and not to please the International Monetary Funds (IMF). Hamza Ali Malik, Director of SBP Monetary Policy Department expressed these views while talking to media after the conclusion of the SBP Board of Directors meeting here on Monday, which finalised the monetary policy for the next two months.
He said the discount rate was raised with the aim of controlling the problems of inflation, which he believed likely to persist in double digit for the remaining year and also much of 2011. He accepted that tight monetary policy has placed extra burden on private sector, but everyone, in one form or another was bearing its burden, and it was vital to check the inflation.
He said the central bank's extensive research suggests that although floods and surge in fuel and energy prices contributed to inflation, but excessive government borrowing is the major factor that led to high and persistent inflation in the country. To a question, he said the tight monetary policy will impact the economy by slowing it down, but it will be wrong to say that it will create unemployment, which is determined by other factors.
He also said the central bank in principal decided to strictly implement the revised limits of provincial borrowing and if a provincial government insist on exceeding the limits, its payments would be stopped. "So far no provincial government has exceeded its limit," he added.
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