In monetary policy, this has meant giving central banks their independence, leaving them to target inflation and set the marginal cost of borrowing in the money markets. The inflation target allows for some inflation but not too much. This is precisely why the Constitution tells us to protect the value of the currency – and to do so without fear or favour.
Further, considering the importance of a forward looking approach to risk management, SBP has instituted a framework of stress testing. The framework is based on single factor sensitivity and regression based analysis. Under the single factor sensitivity analysis, exposures of all banks towards five major risks i.e.