IMF commends Pakistan’s tight monetary policy for controlling inflation

WEB DESK: The International Monetary Fund (IMF) has commended Pakistan for maintaining its current monetary policy, which involves keeping interest rates steady.

This approach is crucial for controlling inflation and aligning expectations with the State Bank of Pakistan’s (SBP) medium-term inflation targets.

The IMF’s comments came in its second and final review report published today, stressing the importance of maintaining a tight monetary stance.

According to the report, the IMF supports Pakistan’s decision to keep policy rates on hold, a move that signals a firm commitment to combating inflation.

The IMF noted that this tight monetary approach will help stabilise the economy, paving the way for gradual disinflation while also demonstrating that the monetary policy framework is effective.

It’s worth recalling that the SBP’s Monetary Policy Committee (MPC) met on April 29 and decided to maintain the policy rate at 22 per cent for the seventh consecutive meeting.

The central bank’s decision reflects a cautious approach to monetary policy, aiming to ensure that inflation remains on a downward trajectory.

Pakistan has acknowledged that any relaxation in the monetary policy stance should be contingent on clear signs of declining inflation, controlled pass-through effects, and limited exchange rate pressures due to normalisation in the foreign exchange market.

The IMF also underscored the importance of successfully reducing inflation to restore public trust in the central bank’s ability to manage the economy effectively.

The fund highlighted that achieving this goal depends on three critical factors: prioritising the medium-term inflation target, using interest rates as the primary policy tool instead of the exchange rate, and ensuring that the mechanisms for monetary policy transmission are functioning as intended.

In summary, the IMF’s report reinforces the importance of Pakistan’s current tight monetary stance in managing inflation and re-establishing confidence in the central bank’s monetary policy framework.

It cautions against any premature loosening of policy and urges Pakistan to stay the course until there’s concrete evidence of sustained disinflation.

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