As central banks the world over launch unprecedented economic stimuli, slash borrowing cost and inject billions of dollars of liquidity into the markets, the Monetary Policy Committee’s 75 bps cut in the Policy Rate is too little (and too late) to make any significant difference to Pakistan’s economy. The MPC continues to justify the high policy rate by reference to a CPI reading which it acknowledges, is heavily impacted by supply side issues. The monetary policy cannot fix supply disruption of tomatoes, flour, sugar or any other essential commodity. So, neither is it the right tool, nor is 12.5% Policy Rate appropriate for a non-cost push inflation of just 5.5%.
In the MPC statement today, we find no mention of the flight of hot money – about $1 Bn of the $3 Bn which came into 3-12 month Treasury Bills has now left our shores because of the Coronavirus scare – and it would have even of the Policy Rate had been higher.