Recognizing the lingering impact of past few years’ easy monetary policy and the emergent demand pressures, the central bank now for almost 18 months has adopted a tight monetary policy stance. Combination of rise in policy discount rate twice, rise in reserve ratios and proactive open market operations together have helped effective liquidity management. Inflationary pressures have come down significantly.
Most distinct is the decline in core inflation though food prices have been volatile largely because of distributional disruptions. Maintenance of price stability calls for retaining tight monetary policy. The Government plans to finance its domestic and external current deficit from the non debt flows which have been buoyant given the strong international interest in Pakistan from all parts including oil exporting Gulf countries.