State Bank of pakistan maintained its policy rate of 12%. it considered that the bank has to issue its reserve currency to the interbank money market to maintain financial stability in the country. As of 28 November 2011, the outstanding amount of liquidity injected by SBP through its Open Market Operations (OMOs) is Rs340 billion. Most of the currency requirement of the banking system is due to the government borrowing for budgetary support.
There is no sign for uptake in private credit despite an earlier 200BPS reduction in policy rate but SBP hope that bank will start lending money to private sector. the circular debt issue has been resolved and most likely the productive capacity of energy sources will be full utilized and hopefully the energy shortage will be reduced which will make borrowing for productive purpose cheaper.
SBP considered three route to solution of the current monetary weakness;
The Government should try to bring foreign resources as promised so that SBP can inject liquidity without affecting exchange rate. The Govt should also bring about change in its tax collection system and increase its tax to GDP ratio. And finally, SBP is trying to develop a secondary market for government securities. it is encouraging depositors to invest in government securities through Investor’s Portfolio Securities (IPS) accounts.
It is obvious that as long as government of Pakistan fiscal deficit is not curtailed, the foreign inflows do not enhance it is less likely that private sector can flourish in the presence of high inflation and energy shortages.
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