Earlier this week, the State Bank of Pakistan announced a 150 bps policy rate hike. Conventional wisdom would say that the logic behind a policy rate hike is inflation. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments
But more even than getting the government to increase interest payments, the goal of the SBP in increasing the policy rate seems to be dissuading the government from borrowing more. In essence, the move is a babysitting measure meant to discourage the government from being fiscally irresponsible. The official explanation given behind the hike was that “this action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability.”
The SBP’s call for “timely action” to “restore fiscal prudence, while providing adequate and targeted social protection to the most vulnerable” also indicates that a key element of the statement released by the central bank is the divergence between the monetary and fiscal policy. This is the first time in the recent few years where the SBP is calling for fiscal prudence. This hints at how things may have gotten out of hand. The content in this publication is expensive to produce. But unlike other journalistic outfits, business publications have to cover the very organizations that directly give them advertisements. Hence, this large source of revenue, which is the lifeblood of other media houses, is severely compromised on account of Profit’s no-compromise policy when it comes to our reporting. No wonder, Profit has lost multiple ad deals, worth tens of millions of rupees, due to stories that held big businesses to account. Hence, for our work to continue unfettered, it must be supported by discerning readers who know the value of quality business journalism, not just for the economy but for the society as a whole.To read the full article, subscribe and support independent business journalism in Pakistan
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