THE governor of the State Bank of Pakistan recently reduced the rate of interest by one and a half percentage points.

The bank also blew a whistle that the government was continuously borrowing from commercial banks, violating rules and printing paper currency to finance the budgetary deficit.

Inflation is thus rising and spiralling out of control.

The purpose of reducing the interest rate at this critical hour requires some clarification, whether undertaken for expansionary or contractual reasons.

Obviously, economic growth and stability in Pakistan is not possible due to a number of reasons, such as frequent loadshedding, electricity and gas shortages, widening gap between imports and exports, falling foreign reserves, and the law and order situation.

In contrast, his decision has reduced the growth of personal savings and eliminated a class of people who were surviving on incomes from their bank deposits.

In fact, he has also provided an opportunity to the government to borrow more at reduced rate of interest.

If the governor was really interested in checking government borrowing from commercial banks, then he should have exercised the cash-reserve option and slashed banks’ liquidity or should have imposed a quota on such lending.

The State Bank of Pakistan is an autonomous body; it should take lessons from the Supreme Court of Pakistan by resisting both political as well as government pressure, and not just simply print paper currency for the sake of an effective monetary policy.

AHMAD ALI KHAN Mississauga, Ontario Canada