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Govt fueling inflation: SBP

Fed borrowing reaches Rs1500bn: Kardar
Staff Reporter
KARACHI: Governor State Bank of Pakistan (SBP) Shahid Kardar Monday said that government’s poor policies are spurring inflation in the country.
Addressing members of the business community at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in Karachi, he said the main reason of price hike was bad governance and the present government was not serious to provide relief to the poor.
Kardar said future strategy to control inflation must include coordinated and timely response to changing macroeconomic conditions along with a concerted effort to raise the productive capacity of the economy.
Kardar stressed that any delay in implementing such a strategy would only make the policy tradeoffs much more difficult resulting in continuing uncertainty regarding desirable economic outcomes.

Responding to various queries regarding Monetary Policy, SBP Governor said that Monetary Policy has played its part in correcting the macroeconomic imbalances, but other government policies have not been that supportive. “Had the SBP not responded, the inflation outlook and reserve position of the country would have been worse,” he added.
Kardar said that in cumulative terms, Pakistan’s economy has experienced an inflation of 66 per cent between June 2007 and October 2010.”This is almost twice the level of inflation seen during June 2003 and June 2007, which was 36 per cent,” he added. He said that the credit extended for ‘commodity operations’, including both wheat and sugar, grew by 288 per cent during the last three years compared to 33 per cent in the three years before that. “Borrowings of this scale would not have been possible without an upward pressure on market interest rates,” he said and added that the borrowing of government agencies for financing its wheat, urea, and sugar trading operations was Rs382 billion at just under 3 per centage points above KIBOR, indicating the interest rate regime that the private sector would have to face in competition with the sovereign.


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