Contents of the resignation say Mr Kardar was unhappy with the financial policy of the PPP-led government as, according to him, it had forced the bank to increase daily printing of new currency notes of Rs2 billion to Rs3 billion. – File Photo by Reuters

LAHORE/KARACHI: State Bank Governor Shahid Kardar confirmed on Friday that he had sent his resignation to the President, but he told a private TV channel that he would spell out reasons for the decision only after the resignation was accepted.

Contents of the resignation say Mr Kardar was unhappy with the financial policy of the PPP-led government as, according to him, it had forced the bank to increase daily printing of new currency notes of Rs2 billion to Rs3 billion.

The SBP believed the printing of banknotes at such a large scale would cause inflation, even though it would relieve the government of some financial obligations in the short term.

Mr Kardar preferred silence when he was reminded that the federal government was claiming that through the intervention of the IMF, the State Bank governor had agreed to retract his resignation and that a formal announcement would be made on the return of Finance Minister Abdul Hafeez Sheikh from Washington.

The contents of the resignation reveal that Mr Kardar resigned because of differences with the government over policy actions and directions, sources told Dawn on Friday.Despite these revelations, neither the government nor the central bank has tried to clear the confusion over resignation of the Governor.

“Owing to continuing differences of opinion on policy actions and on the implementation of certain directions that I, in my best judgment, did not consider to be prudent or consistent with the integrity of the State Bank I am constrained to offer my resignation,” is a part of the resignation letter Mr Kardar submitted to the President. A copy of the letter is with Dawn.

The State Bank spokesman said he was not in a position to confirm or deny the contents of the letter.Sources in the ministry of finance said the differences took a serious turn at the time of preparation of the budget for 2011-12. The differences were visible in the budget document which rejected the State Bank’s tight monetary policy, contending the stringent policy retarded growth.

The State Bank has been maintaining a tight monetary policy amid double digit inflation and fears of hyper inflation. The SBP argues that if the interest rate is reduced at a time when inflation was hovering around 13-14 per cent, the economy may have to face a bigger bout of inflation.

Mr Kardar’s letter further said; “All the decisions I took while in office were to safeguard the integrity of the Bank, to ensure prudent conduct of monetary policy and to maintain the safety, soundness and stability of the banking system.”

The SBP has been critical of the government’s borrowing from the central bank as well as commercial banks, blaming it for a sluggish economy.

“Critical differences are impeding the fulfilment of this mandate,” said Mr Kardar in his resignation.

“For these reasons and more importantly, to avoid a possible paralysis in economic decision-making in these difficult times for our nation, the only honourable course for me is to leave my position as Governor, State Bank of Pakistan,” said the resignation.

After Mr Kardar’s move, the government will find it difficult to convince investors and donors like IMF that the economy is on track and running smoothly, according to financial experts.