SBP urged to take into consideration monetary policy’s effects on the life of common man

LAHORE: State Bank of Pakistan (SBP) should consider the effects of monetary policy on the day-to-day life of the common man which includes its effects on poverty, inequality and other social out comes.

This was according to the report ‘Monetary Policy for All: Understanding the Social Footprint of Monetary Policy in Pakistan’ written by Research fellow and head policy SDPI Dr Sajid Amin Javed. The report launching was held at Government College University Lahore in collaboration with Friedrich Ebert Stiftung. The ceremony was attended by vice-chancellor GCU Lahore Dr Asghar Zaidi and Programme Coordinator FES Abdullah Dayo.

According to the report monetary Policy effects day-to-day life of the common man which includes its effects on poverty, inequality and other social out comes. SBP, therefore, needs to assess, consider and communicate the side effects of monetary policy to the public for greater transparency, as well as to the government in order to align fiscal and regulatory policies to counter these unintended consequences.

The report maintains that monetary policy actions to achieve price stability must be aligned with the social and development agenda of the country to promote the welfare of the people.

Overall, Pakistan needs a central bank and monetary policy, which while delivering its formal mandate of price stability is considerate of the pressing challenges faced by the country today - extreme poverty, widespread joblessness, precarious employment and burgeoning inequality. This drive to include the social, considerations of macroeconomic policies and to minimise the adverse side effects of monetary policy on the poor and the marginalised, can help the SBP to contribute to the welfare of its ultimate stakeholder: the common man.

The SBP would also greatly benefit from addressing its public trust deficit, by improving the public’s knowledge of monetary policy decisions and the role of SBP, so that SBP policies are able to stand on their own merits, and by keeping politics out of monetary policy decisions. Increasing transparency in its administrative and operational functions will so aid in this. This can be done by issuing the voting history of each member of the MPC, and by publishing its detailed criteria and reasons for selecting and nominating members for different decisions making boards etc.

The report suggests that academia, civil society and other development partners can help the SBP make the transition towards a socially considerate central banking and monetary policy. This can do this by expanding both public and expert thought on monetary policy, and producing actionable research on the different dimensions of monetary policy’s social foot print. Academia in general and SBP’s memorial chair in economics established in universities in particular provide a brilliant resource for supplementing the SBP’s research.

Similarly, policy think tank can contribute to reducing the gap between the SBP and the public at large, by aiding it to convey otherwise technical and complex issues in to the layman’s terms. They can also become the medium through which the SBP and the public communicate with one another: taking voices of the public to the SBP and communication from SBP back to the public at large. In this regard, the SBP, as well as other development partners, can facilitate collaborations and initiatives for capacity building, to promote independent and broad based inquiries in to central banking and monetary policy in the country, with particular focus on social foot print of monetary policy.

Speaking on the occasion vice chancellor GCU Lahore Dr Asghar Zaidi said that principle of central bank independence has been recently codified in the legal systems of Pakistan with a greater clarity. SBP amendment act 2021 lays down the strong foundations for autonomy of the SBP. Primarily, the bill mandates SBP to concentrate on the welfare-enhancing objective of keeping inflation under control, the lower and stable inflation.

However, the importance of central bank independence seems to be not well understood by society at large. Overwhelming majority of experts and political parties opposed the bill. Public at large has already a poor understanding of the monetary policy, thus of the bill as the monetary policy has distanced itself from the issues of the common man since long.

Programme Coordinator FES Abdullah Dayo called for initiating debate on the policies of economic justice adding that monetary policy is its important component.

Research fellow and head policy SDPI Dr Sajid Amin Javed while expressing his views on the subject said that essentially, the SBP, in order to deliver on price stability, will have to alter the inflation expectations towards lower and stable inflation-from higher and volatile inflation. Anchoring inflation expectations requires that the central bank be regarded as credible. Public at large should have confidence in SBP’s policies 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 Bristol University United Kingdom Dr Ahmed Jamal Pirzada shared his views on inflation targeting and challenges revolving around it. Pakistan’s inflation target is set by government and is 5-7 percent. This target is to be achieved over the medium term. Monetary policy is anchored on achieving the government’s inflation target over the medium term i.e. over the next 18-24 months. As of performance fast forward SBP notes highlight “during FY23, inflation is expected to decline towards the medium-long term target range that is 5-7 percent and how SBP has been revolving around it.

Head of Research Business Recorder Ali Khizar talked in detail about anchor (alter) inflation expectations of public at large, gradually from high and volatile inflation to low and stable inflation. He emphasised on the communication segment of the SBP. The policymaking by SBP is very flexible and the communication is getting better and as they are inclined towards engaging with the market. Academia and think tanks can play an important role in a positive communication outreach.

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

Copyright Business Recorder, 2022