KARACHI, Nov 22: State Bank of Pakistan Governor Dr Ishrat Husain has defended his monetary policies and said that the monetary growth has been zero per cent for the last four months which justifies the steps taken as monetary strategy.

Talking to the media after inauguration of State Bank’s Learning Resource Centre (LRC) here on Tuesday, Dr Husain also supported inflation level of 8 per cent during the current year.

He said that monetary expansion had been targeted at 12 per cent for the current fiscal year. “For the last four months the monetary growth is zero, which justifies the monetary policy,” he added.

He said the central bank would continue with tight monetary policy to check inflation. He said inflation would remain around 8 per cent. The private sector credit off-take had dropped by 33 per cent during the last four months reflecting the tight monetary strategy adopted by the central bank, he added.

Last year the private sector credit off-take was record high which proved a catalyst to push inflation into the orbit of double digits. The monetary policy has been under serious criticism by the independent economists who accused the SBP of high monetary expansion resulting in the region’s highest inflation. However, the government and the SBP have been arguing that higher oil prices in the international market and local food prices were the main reasons for inflation.

The monetary policy is reviewed twice in a year by the bank. The next meeting would be held in January 2006 to review the impact of the monetary strategy. Dr Husain said that next year inflation target would be 6 per cent.

The governor rejected the impression that the donors’ offers of $5.8 billion would prove a debt trap for the country. On November 19 in a Donors’ Conference, countries pledged $5.8 billion for the reconstruction and rehabilitation of the earthquake hit areas, but most of the amounts were in the form loans.

He said that the debt would not be a burden on the country as these were soft loans and repayment would start after 10 years while payment would be made in 25 to 30 years.

Several non-governmental organizations (NGOs) have criticized the donors that they offered loans instead of grants which would only increase the foreign debt of the country. However, the government has welcomed and found the donors’ offers valuable and a support to the country.

Out of the $5.8 billion, the World Bank, Asian Development Bank and IMF collectively offered about $2.4 billion.

After donors’ pledges the government has immediately increased the cash support to the earthquake victims from Rs20 billion to Rs80 billion. However, the government would require time to avail the offers by sitting with each donor to set the terms and conditions involved in these financial helps.

The SBP library has been shifted to the LRC, which comprises three conference rooms, a library, a seminar hall, five syndicate rooms, self-learning work stations, reference rooms, computer facilities and an auditorium. It also has a media information centre and bookshop.