KARACHI, Jan 2: Syed Salim Raza took over the office of Governor State Bank of Pakistan on Friday vacated by Dr Shamshad Akhtar after completion of her three-year term.

Dr Shamshad left the State Bank in a difficult situation especially when the country is facing tough time amid melting down of global financial system.

Despite all her best efforts she could not get the desired results of her monetary policies though she had been accusing the government and poor economic management for failure like higher inflation.

The State Bank under Dr Shamshad did not see much change as she kept tightening the policy during entire her tenure but most of the monetary expansions were higher than the targets.

However, for the first time during the first quarter (July-October) of FY09, the broad money expansion looks under control but thanks to highly negative net foreign asset growth. She had been raising voice against the rampant government borrowing from the State Bank which was one of real causes for the record high inflation and monetary expansion but the government never stopped the wrong practice.

Now Salim Raza has taken the charge under the shadow of IMF agreement which allows limited authority to the State Bank to use its power for bringing change in the monetary policy. Monetary policy review is due at the end of this month.

Mr Raza has vast banking experience of 36 years but it will be his first job to regulate the entire banking system of the country which currently under mounting internal and external pressures.

It is of great interest for bankers and economists whether the new SBP governor will continue with the present policy thrust or he will come up with more proactive approach to shield the banking industry from the adverse impact of global financial crisis.

Liquidity crunch is there, slowing down of economy is evident, more difficult time is approaching the trade and industry and the complicated case of circular debt needs urgent attention.

Manufacturing and trade sector demanding cut in the policy discount rate while the SBP looks under pressure to further increase the key interest rate in the next monetary policy review as per the agreement with the IMF.

Amid severe energy crisis that has already knocked down business and industrial activities, any further increase in interest rate will be tantamount to paralyzing the entire economy.

The central bank needs to come out with some practical solutions to minimise the impact of high interest rate regime that is also affecting the banking sector. Banks cannot lend their money at 20 per cent plus to the industry and may choose to park their liquidity in government securities which is unproductive use of money and simply affect the economic growth.

“Time is hard and the governor is new. I don’t hope any change in few months,” said a senior banker.