Reason behind increasing policy rate was to address rising inflation: Fida Hussain

KARACHI:Director of Monetary Policy Department State Bank of Pakistan (SBP) Fida Hussain, on the other day, stated key reason behind the latest monetary policy decision raising the policy rate by 100 basis points, taking it to 17 percent, was to prevent inflation to further surge.

On a podcast episode, released from the SBP’s YouTube channel, Fida Hussain said the global economy was witnessing a slowdown and there were indications that some major advanced economies may experience recession.

It is pertinent to mention that the Central Bank on January 23 raised the policy rate to ‘anchor inflation’.

Reasoning on the said decision of raising the policy rate, Fida Hussain said the higher food inflation and core inflation, if allowed to entrench, created the risk of a wage-price spiral, and therefore, necessitated a tight monetary policy response.

“The SBP recognizes the short-term costs of monetary tightening for economic activity, but also believes that curbing inflation now is essential for ensuring sustainable growth over the medium to long term,” he noted.

He hoped to benefit from slightly declining commodities prices internationally, saying that if they persist, it would have a positive impact on the country’s imports and current account balance.

The podcast also highlighted the need for fiscal policy to work in tandem with monetary policy to curtail demand-side pressures when inflation is high.