Monetary Policy in Pakistan

Topics: Monetary policy, Inflation, Keynesian economics Pages: 3 (1060 words) Published: December 27, 2012
Monetary policy in Pakistan|
By Dr. M. Hanif Akhtar,
 Department of Commerce,
 B. Z. University, Multan
                                                            Aug 28 - Sep 03, 2000Monetary policy in Pakistan has been used in co-ordination with the fiscal policy to achieve both the objectives of macro-economic stability and higher economic growth. The government supervises monetary situation of economy through the State Bank of Pakistan (SBP). This article attempts to present an overview of the monetary policy in Pakistan overtime.During the decade of fifties, monetary policy was used to correct external balances in the economy. The government followed the tight monetary policy during the early fifties to prevent inflationary tendencies in the economy. But there was an increase in the money supply because of the deficit financing.The phenomenon of monetary expansion continued during the sixties (Although growth rate of money supply slowed down in the late fifties). Increase in bank rates, cash reserve requirements, liquidity ratios, abolition of credit quotas and the imposition of credit ceiling etc. were the main measures because of rapid increases in private investment and growth of GDP (6.8% in 1960s). The government tried to restrict money supply in the economy to counteract inflation because of conflict with India in 1965 and crop failure in 1966. However, heavy defence expenditures and cut in aid flows forced the government to resort to deficit financing for correcting the fiscal imbalance. It would be pertinent to mention that inflation rates remained low (3.8%, annual average) during this period. This was due to an improvement in the economy and steps taken by the monetary authorities (e.g. increase in bank rates, cash reserve requirements, liquidity ratios, abolition of credit quotas and imposition of credit ceiling). Table-1 Monetary assets in Pakistan| (annual average)|

1| 1950s| 1960s| 1970s| 1980s| l990s|
Stock of...
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