THIS is with reference to the article ‘State Bank’s bluff’ (Jan 28) which comprised an incorrect insinuation. As stated in paragraph 2 of the monetary policy statement, the goal of giving forward guidance was to provide policy predictability and facilitate decision-making by economic agents.
The choice of the word ‘bluff’ implies mal-intent on the part of the Monetary Policy Committee (MPC).
There is no reason for the MPC to undermine its own credibility by committing to a future course of action that it supposedly knows it will not be able to carry through.
While announcing the monetary policy decision, the MPC had clearly explicitly explained that while the recovery in the economy was gathering momentum, such guidance could be helpful in curtailing the considerable uncertainty created by the Covid-19 pandemic by bringing about policy predictability.
The MPC’s decision was based on a balanced assessment of the macroeconomic outlook and risks. It was facilitated by the absence of demand-side price pressures and recent improvements in the external position of the country.
Furthermore, the decision is also in line with the practice of many other central banks, like the US Federal Reserve, the Bank of England, the European Central Bank, and, more recently, Bank Indonesia and the Central Bank of Brazil, that use such guidance to anchor expectations.
SBP Spokesperson
Karachi
Published in Dawn, January 30th, 2021
