ISLAMABAD: There is a critical need to bring inflation down so as to insulate public from the regressive ‘inflation tax’, as well, as to support economic growth at a sustainable basis and to reduce poverty in Pakistan.
Sources in the Finance Ministry said this was submitted by the State Bank of Pakistan (SBP) in writing to a Senate Finance Standing Committee on the impact of high interest rate for business community.
In response to rising inflation, the SBP has been pursuing a tight monetary stance since September 2021. The monetary tightening efforts by SBP have been supplemented by a contractionary fiscal policy stance to contain inflationary pressures in the economy.
High interest rate environment
These policies have begun to yield results. Inflation, which peaked at 38 per cent in May 2023 moderated to 27.4 per cent in August 2023. These measures, as expected have; however, led to a slowdown in economic activity. The real GDP in fiscal year is expected to grow in the range of 2-3 per cent, after witnessing a low of 0 3 per cent in fiscal year 2023.
To sustain this recovery and achieve higher economic growth over the medium-term, it is vital to bring inflation down within its five to seven per cent medium-term target range. Inflation has though peaked, and come down in recent months; it is still very high and warrants stabilisation measures to continue.
Therefore, it is critical to bring inflation down so as to insulate public from the regressive inflation tax, to support economic growth at sustainable basis and to reduce poverty in Pakistan, the SBP added.
Moreover, the reduction in inflation will allow businesses to make more reliable plans when taking decisions about borrowing and capital expenditure to expand their businesses, according to the SBP.
Copyright Business Recorder, 2023
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