KARACHI: During his stint at the central bank, Dr Reza Baqir oversaw several new initiatives, including State Bank of Pakistan (SBP’s) Covid response packages; Roshan Digital Account to connect overseas Pakistanis with local banks; Raast instant and free payment system, and finalising the Digital Banking Policy to pave the way for digital banks.

However, a key goal of the central bank is to achieve and maintain domestic price stability and inflation — something that remained out of SBP’s control during Dr Baqir’s tenure (except for the Covid period).

Headline inflation jumped to 13.4 per cent in April — the highest level since January 2020 when it stood at 14.6pc — on the back of a persistent increase in prices of perishable and non-perishable products, according to the Pakistan Bureau of Statistics.

Monthly inflation was 8.3pc when Dr Baqir came to office in May 2019.

It then saw a steady increase over the next several months and hit 12.4pc in February 2020, when the first case of Covid-19 case was reported in Pakistan.

As far as inflation is concerned, Covid-19 came as a godsend for the State Bank.

The SBP started to slash its policy rate from the next month, announcing two reductions in March 2019 — first, a 75bps cut to 12.5pc and then another 150bps drop to 11pc.

The central bank continued to slash borrowing costs over the next few months until they dropped to 7pc in June that year. It was the fifth time the central bank reduced the interest rate in the last 100 days.

“Together, this strong and data-driven monetary policy response should support growth and employment while keeping inflation expectations anchored and maintaining financial stability,” the SBP said in its monetary policy statement at the time.

The SBP then left the rate unchanged for more than a year before it increased it in September 2021.

Inflation largely remained low during this period (March 2019 to September 2021), and even reached 5.7pc in January 2021.

In September, the SBP raised its benchmark interest rate by 25 basis points to 7.25pc and signalled that it could increase rates further in the coming months as the need to support the country’s economy due to the Covid-19 crisis has eased.

It then increased the policy rate to 8.75pc in November and 9.75pc the next month and then kept it unchanged for three months.

On April 7 this year, the State Bank raised its policy rate by 250 basis points to 12.25pc in an emergency meeting. It was the biggest hike in years.

The central bank cited a deterioration in the outlook for inflation and an increase in risks to external stability, heightened by the Russia-Ukraine conflict, as well as domestic political uncertainty.

The hike was unscheduled as the next monetary policy committee meeting was set for late April, but the bank had warned last month that it could meet earlier than expected to safeguard external and price stability.

Domestically, the bank said the March inflation turnout was higher than expected and political uncertainty, which has peaked with a standoff between former prime minister Imran Khan and the then opposition, had worsened matters.

Ever after that massive hike in the policy rate, inflation continues to rise, reaching 13.4pc in April.

In its next monetary policy meeting on May 23, the State Bank is once again expected to increase the policy rate by 100 to 150 basis points.

However, after all is said and done, it is still too soon to pass a verdict on Dr Baqir’s time at the helm of the central bank. Political turmoil at home and global factors like the Russian invasion of Ukraine, which sent global commodity prices skyrocketing, all contributed to galloping inflation on his watch.

Published in Dawn, May 6th, 2022