With the emerging domestic and global price pressures, SBP tightened its monetary policy after a prolonged gap of a few years. The efforts to rein-in inflation, however, proved less effective due to a rebound in international commodity prices and a rise in domestic food prices later on. The rise in the international commodity prices, particularly oil, exacerbated the fight against inflation.
The international oil prices (Arabian Light) rose from $ at end 2004 to $ at end 2006, whereas international food prices rose by 24, 24 and 21 percent during 2004, 2005 and 2006 respectively. 2 Realizing the complications of monetary management and adverse global and domestic economic developments, the implementation of SBP monetary policy during FY06 varied significantly from the preceding fiscal years.