SBP advises bankers to tackle current economic problems

KARACHI - State Bank of Pakistan Governor Yaseen Anwar has called upon regional central bankers to fully understand the nature of their economies and go beyond text book approaches to tackle today’s economic problems. He said this while inaugurating a three-day SAARC Finance Regional Seminar on ‘Monetary Policy Frameworks in the SAARC Region’ at the National Institute of Banking and Finance (NIBAF), Islamabad on Thursday.
He stressed upon the participants to check the validity of basic assumptions while developing models for economic forecasts in view of the possibility of a breakdown in relationships between key variables in the backdrop of emerging economic realities. “We also need to keep a close watch on the pulse of the economy, considering it is a living and ever evolving organism,” he added.
Anwar said that a comprehensive understanding of economy is necessary in order to correctly calibrate monetary policy, which may then achieve objectives of price stability and economic growth.
He said that sharing ideas and experiences at a regional forum will help central bankers better understand the nature of their economies. He urged them to explore ways by which monetary policy frameworks may be improved through mutual and collaborative efforts.
SBP Governor said targets set by central banks have an effect on the real economy and implications for price stability.
However, central banks’ policies are more effective when they are independent of fiscal influence, have market freedom and are time-consistent, he said, adding that the absence of these conditions may reduce the efficacy of their policies. Anwar disclosed that the real interest rate channel in Pakistan is found to be extremely weak during the times of frequent price changes and high inflation.
Quoting a recent study of SBP’s Research Department, he said that prices are revised roughly every quarter in the economy. ‘Coupled with the fact that Pakistan’s economy has experienced double-digit inflation during the last 4 years. He pointed out that the lending channel appears to be quite robust and is the key channel through which monetary policy is transmitted to the real economy in Pakistan. Similarly, the role of exchange rate channel has also gained importance over time due to liberalisation of the foreign exchange market in the country.
He observed that the complexity and the uniqueness of our economy only emphasise the need to develop a thorough grass-root understanding of the economy, and a customised toolbox to deal with the multiple challenges along the way.
‘We have moved towards a better understanding of our economy and we’ve made some significant progress towards discovering the impact that our monetary policy has on the real economy, he added.

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