KARACHI, Sept 25: Under the tight monetary policy, the monetary growth was much higher than the desired and the expected level in the year ended June 2007.

The final figures were released after almost three months by the State Bank.

The long-prevailing tight monetary policy failed to produce the desired results for the economy as well as the State Bank which is responsible for managing the monetary growth.

The target set for the year 2006-07 was grossly missed and monetary growth was 19.32 per cent, 43 per cent higher than the 13.46 per cent set as target.

More concerning could be the growth in terms of amount which is real cause of monetary inflation.

Monetary growth in terms of amount grew by Rs658 billion which was a record high. The State Bank believes that phenomenal growth of reserve money was responsible for monetary growth. And the reserve money was the direct outcome of the huge inflows of foreign exchange.

The foreign inflows were record high as both the remittances sent by the overseas Pakistani workers and foreign direct investments reached an all time high. The SBP showed that as a result of high foreign inflows, the reserves money increased at the rate of 20.88 per cent during the year which was higher than 10.16 per cent in the year 2005-06.

The monetary growth was the real cause of inflation which was about eight per cent for the last year. Despite lower flow of credit to private sector, huge supply of currency in the economy plagued it through inflation.

The higher inflation was attributed to the food price-hike and this hike was also because of mismanagement in distribution and smooth supply of goods.

The State Bank, in order to further tighten the monetary growth, increased discount rate from 9.5 per cent to 10 per cent for July-December 2007.

Though the SBP has been maintaining tight monetary policy for more than three years and gradually increased the discount rate, a benchmark for the interest rates, the outcome was still not in line with the desires of policy makers.

The credit flow to the private sector reached Rs365 billion during the last fiscal while the target was Rs390 billion. The credit off-take by the private sector was not much below the target which showed that despite higher interest rate, the demand and consumption of the private sector remained higher.

The State Bank decided to refrain from any target setting for the monetary policy and in the new monetary policy, no monetary targets were set for the current fiscal 2007-08.

Analysts say it may help SBP avoid criticism over the targets failure but at the same time it would hurt transparency of monetary policy and its performance. They say that in order to judge the monetary policy performance during the year, comparative figures would be needed.