KARACHI, July 28: The State Bank is expected to announce Monetary Policy for 2006-07 on Saturday (today) but economists see little change in the policy as they feel that continuation of the same policy only would keep the consumer-demand-based economic growth at the desirable level.

The SBP is likely to continue with the tight monetary policy. The major indication of the policy appeared when the SBP increased the Cash Reserve Requirement (CRR) and Statutory Liquidity Requirement (SLR) by 5 per cent to 25 per cent collectively.

It was an obvious indication that the real interest rate would go up during the current fiscal year. It was felt that the SBP decided not to encourage further increase in the asset prices and no more asset bubbles be created.

Analysts said that the chasing down the inflation would be the real target of the SBP’s monetary policy but they also hold the SBP responsible for long-term economic stability.

They said the cheaper supply of credit had caused enough damage in the form of assets price hike, though it also heated up the economy to push the GDP growth close to seven per cent on average.

For last couple of years, the flow of credit to the private sector remained at the highest level, which inflated the economy and the conventional inflation also remained above 8.4 per cent for most of the time during 2005-06.

Analysts believe that by raising the banks’ reserves with the SBP, the credit availability has already been curtailed and the money is made expensive, a clear move towards higher interest rates.

The SBP has not the single responsibility to control the conventional inflation but the economic stability and the subject of price control is also considered as the issues, which come under its jurisdiction. However, the price control of specific items is not the target but the overall prices are linked with the monetary policy, which shapes up the future trend.

Limiting the credit flows to the private sector has been a critical point for the government, which achieved its economic growth by gearing up the consumer-based economic activity with record supply of cheaper credits. The minister of state for finance and economic affairs in his budget speech also spoke about the growth. He mentioned the growth in production of television, cars, motorcycles, air-conditioners, and refrigerators etc. It reflected the consumer-based economic growth.

The higher interest rate would certainly discourage the consumerism and may affect the economic growth adversely. To what extent the SBP can go to curtail the credit flows towards the consumers, could be judged from the contents of the monetary policy on Saturday.

The worst impact of the negative real interest rate prevailed during the last two years between 2003-05 appeared in the form of real estate price hike and it threw away the majority of masses out of this business. Analysts said that the SBP should take more action to prevent the economy from asset price bubbles and should do more to burst some bubbles despite the negative outcome.