Karachi: The State Bank will announce the monetary policy on March 10. After a more than expected decline in inflation, it is expected that the State Bank will announce a reduction in the policy rate, which was 22 percent last year and has now reached 12 percent after continuous decline.
The reduction in the policy rate will certainly play a role in economic improvement, but the government needs to adopt a cautious approach to reduce the policy rate.
Inflation has indeed decreased, but the reasons for this decrease are not sustainable, policymakers should not repeat the mistakes, and should not make a large reduction in the policy rate.
This was done in the past in 2008, 2018 and 2022, which had negative effects. A moderate reduction in the policy rate is needed. Infrastructural reforms are needed before a large reduction in the policy rate.
As a responsible and prudent policy, a maximum reduction of 50 basis points in the future policy rate would be appropriate, this would provide flexibility in policy, maintain economic confidence, and protect against past bad cycles.
Pakistan should learn from past experiences, slow and steady policy is the only path to reliable and lasting stability.
