Constituent policy

SBP urged to consider the effects of monetary policy on the life of the common man – Business & Finance

LAHORE: The State Bank of Pakistan (SBP) should consider the effects of monetary policy on the everyday life of the common man, including its effects on poverty, inequality and other social outcomes.

This was according to the report “Monetary Policy for All: Understanding the Social Footprint of Monetary Policy in Pakistan” authored by SDPI Researcher and Policy Officer Dr. Sajid Amin Javed. The launch of the report took place at Government College University Lahore in collaboration with Friedrich Ebert Stiftung. The ceremony was attended by GCU Lahore Vice Chancellor Dr. Asghar Zaidi and FES Program Coordinator Abdullah Dayo.

According to the report, monetary policy affects the everyday life of the common man, which includes its effects on poverty, inequality and other social outcomes. Therefore, SBP must assess, review and communicate the side effects of monetary policy to the public for greater transparency, as well as to the government to align fiscal and regulatory policies to counter these unintended consequences.

The report argues that monetary policy actions aimed at ensuring price stability should be aligned with the country’s social and development agenda to promote the well-being of the people.

Overall, Pakistan needs a central bank and monetary policy that, while fulfilling its official mandate of price stability, takes into account the pressing challenges facing the country today – extreme poverty, widespread unemployment, precarious employment and growing inequalities. This willingness to include the social considerations of macroeconomic policies and to minimize the negative side effects of monetary policy on the poor and marginalized can help the SBP contribute to the well-being of its ultimate actor: the common man.

The SBP would also greatly benefit from addressing its public trust deficit, by improving public knowledge of monetary policy decisions and the role of the SBP, so that SBP policies are able to be justified, and by keeping the policy away from monetary policy decisions. Increasing the transparency of its administrative and operational functions will contribute to this. This can be done by publishing the voting history of each MPC member and publishing their detailed criteria and reasons for selecting and appointing members to the various decision-making councils, etc.

The report suggests that academia, civil society and other development partners can help the SBP make the transition to a socially responsible central bank and monetary policy. This can be done by broadening public and expert thinking about monetary policy and producing actionable research on the various dimensions of monetary policy’s social footprint. Academia in general and the SBP Memorial Chair in Economics established at universities in particular are a brilliant resource to complement SBP research.

Similarly, a policy think tank can help bridge the gap between the SBP and the general public, helping them to convey otherwise technical and complex issues in simple terms. They can also become the means by which the SBP and the public communicate with each other: making the voice of the public heard at the SBP and the communication of the SBP towards the general public. In this regard, the SBP, along with other development partners, can facilitate collaborations and capacity building initiatives, to promote independent and large-scale investigations of the country’s central bank and monetary policy, by placing particular emphasis on the social footprint of monetary policy. Politics.

Speaking on the occasion, GCU Lahore Vice Chancellor, Dr. Asghar Zaidi said that the principle of central bank independence has recently been codified in Pakistan’s legal systems with greater clarity. The SBP 2021 amending law lays a solid foundation for the autonomy of the SBP. Primarily, the bill forces SBP to focus on the welfare-enhancing goal of keeping inflation under control, lower and stable inflation.

However, the importance of central bank independence seems to be misunderstood by society as a whole. An overwhelming majority of experts and political parties opposed the bill. The general public already has a poor understanding of monetary policy, hence the bill because monetary policy has moved away from the common man’s stakes for a long time.

FES program coordinator Abdullah Dayo called for initiating a debate on economic justice policies, adding that monetary policy is its important component.

SDPI Researcher and Policy Officer, Dr. Sajid Amin Javed, while expressing his views on the subject, said that essentially the SBP, in order to achieve price stability, will have to alter inflation expectations. to lower and stable inflation – from higher and volatile inflation. Anchoring inflation expectations requires that the central bank be seen as credible. The general public should have confidence in the policies of SBP and believe that it will maintain price stability while responding to different economic situations/conditions, such as widening current account deficit, weakening rupee, etc. .

While discussing the report, lecturer from the University of Bristol in the UK, Dr. Ahmed Jamal Pirzada, shared his perspective on inflation targeting and the challenges surrounding it. Pakistan’s inflation target is set by the government and is 5-7%. This objective must be achieved in the medium term. Monetary policy is anchored on achieving the government’s inflation target over the medium term, ie over the next 18 to 24 months. As the SBP’s rapid performance ratings point out, “In FY23, inflation is expected to decline towards the medium to long-term target range of 5-7% and the way the SBP has been hovering around from her.

Business Recorder head of research Ali Khizar spoke in detail about the general public’s anchor (alter) inflation expectations, gradually moving from high and volatile inflation to low and stable inflation. He emphasized the communication aspect of the SBP. Policy making by SBP is very flexible and communication is improving and they are willing to engage with the market. Universities and think tanks can play an important role in positive communication.

Associate Professor, Department of GCU Economics, Dr. Saima Anwar said this session aimed to discuss the importance of credibility issues and inflation expectations for SBP in its new role. She said that this session discussed in detail the improved understanding and recognition of the importance of SBP’s autonomy and increased focus on price stability. She called for increasing the credibility of the SBP by engaging the provincial chapter of academia as a chair who can play an important role in monetary policy.

Copyright Business Recorder, 2022