Monetary policy considerations


Whatever the pros and cons of SBP’s intervention in the money market to put a floor under the rupee, the more important debate is that the central bank’s policies should be in keeping with the interests of the people and the state. And Governor Dr Reza Baqir has been conspicuous by his absence all the time the rupee has been collapsing since May. That silence, more than the unsteady rupee, unnerved businesses because the one thing markets hate even more than bad news is uncertainty. And it’s not that the Bank was acting to contain volatility in the currency market, it’s that it hasn’t exactly telegraphed its intentions correctly of late; rather it hasn’t sent any signals at all about anything.
That is where the governor has left a little something to be desired. To simply back the government’s line that all is well and everything will get better leaves the people in the dark more than enlightening them because they wake up every day to high inflation, sticky wages, fewer jobs and the rupee in free fall. Traders don’t know how to hedge their bets in the futures market because they have no idea which way monetary authorities are going to lean. Is it a surprise, then, that Large Scale Manufacturing (LSM) growth is beginning to slow down and current account and trade deficits are rising again?
That fiscal and monetary policies need to be mindful of the fine print in some of our bailout agreements is appreciated, and this is something that markets have long since factored into prices, but even then it is the people’s right to have all available information and the Bank’s job to provide it. In not realising this important fact, the SBP has wasted a lot of precious time. But now that the cat is out of the bag, so to speak, and there is a little breathing space for the local currency, the first order of business should be to provide complete clarity about the monetary sector to everybody. And with the interest rate announcement due next week, no time could be better for it.