Review of rising interest rate.

• Author: Kazmi, S. Kamal Hayder

Byline: S. Kamal Hayder Kazmi

To sustain the price stability, researchers revealed that the Reserve Bank of any country manage the money supply of that country. Therefore, monetary policy plays its role to stable the economic growth by the number of channels. Researchers also recorded that price stability is main contribution of monetary policy for sustainable growth of any country. As it is considered that continuous grow in price level is only because of monetary phenomenon, so for sustaining the price stability monetary policy uses dissimilar tools to effect the money supply. They have also recorded that only the costs are not affected through the monetary policy but it has comprehensive impact on economy's financing situations. It also affects the credit's availability and willingness of banks to assume the risks etc. Future predictions about economic activities, inflation, exchange rate, investment and consumption are also affected through the monetary policy.

In May 2019, the State Bank of Pakistan (SBP) has raised its benchmark interest rate by 150 basis points (bps) to 12.25 percent. SBP's estimates explained that economic growth was predicted to slow in FY2019 but increase modestly in FY2020. Sources mentioned that this slowdown is mostly because of lower growth in industry and agriculture. Greater than two-third of real GDP growth in FY2019 is predicted to come from services.

Economic Indicators Of Pakistan

Details###FY18###H1-FY18###H1-FY19

##Growth rate (percent)

LSM###5###6.6###-1.5

CPI (period average YoY)###3.9###3.8###6

Private credit (flow)###14.9###5.7###9.5

Money supply (flow)###9.7###2.3###3.6

Exports###13.7###10.9###1.9

Imports###14.9###18###-2.6

FBR tax revenue (billion Rs)###3,844.00###1,722###1,795

Exchange rate (+app/-dep%)###-13.7###-5###-12.5

million US dollars

SBP's liquid reserves (end-period)###9,789###14,107###7,199

Workers' remittances###19,623###9,745###11,030

FDI in Pakistan###3,092###1,633###1,319

Current account balance###-18,989###-8,353###-7,615

Fiscal balance (% of GDP)d###-6.6###-2.2###-2.7

According to SBP policy report, the current account deficit narrowed to $9.6 billion in July-March FY2019 as against to a deficit of $13.6 billion during the corresponding period previous year, a decline of 29 percent. The reduction is mainly driven by import compression and a healthy growth in workers' remittances. Moreover, the non-oil trade deficit declined from $13.7 billion in July-March FY2018 to $11 billion...