Q Does SBP publish the minutes of the Monetary Policy Committee’s meetings to review monetary policy stance?

A: Yes, in order to have greater transparency, SBP publishes the minutes of the monetary policy proceedings on its website.

Q: What is the policy rate in Pakistan?

A: In May 2015, SBP has introduced a ‘Target Rate’ for overnight money market repo rate, as a new ‘Policy Rate’ to unambiguously signal SBP’s stance of monetary policy. With effect from 21st May 2016, the policy rate is 9 percent.

Q: When and why did SBP adopt explicit interest rate corridor?

A: With effect from August 17, 2009, SBP adopted a new framework for its monetary operations by introducing a 300 basis points corridor for the money market overnight repo rate. In this framework, SBP reverse repo rate serves as a ‘ceiling’ and the SBP repo rate provides a ‘floor’ to the corridor. With effect from February 11, 2013, the width of the corridor has been reduced to 250 basis points. The width was further narrowed down to 200 bps in May 2015.

Before the existence of the corridor, the overnight money market repo rate remained very volatile, which often diluted the monetary policy signals. The objective of adopting the interest rate corridor was to strengthen the transmission of monetary policy signals by stabilizing the short-term interest rates in the interbank money market around the middle of the corridor. The adoption of this framework has helped in improving SBP’s liquidity management, enhance effectiveness of monetary policy signaling, and foster stability in money market operations and interbank interest rates.

In May 2015, SBP announced changes in the existing Monetary Policy Framework by introducing the SBP Policy (target) Rate. SBP has introduced the new Policy (target) Rate to unambiguously signal SBP’s stance of monetary policy.  SBP reverse repo rate (ceiling) and repo rate (floor) are set at +50 bps and -150bps from the Policy (target) Rate. SBP has increased the frequency of OMO repo operations of varying tenors including overnight to ensure that the money market overnight repo rate remains close to this target rate. This is the Policy (target) Rate of SBP.

Q: What are the operational, intermediate and ultimate objectives of monetary policy in Pakistan?

A: Operational target of SBP’s existing monetary policy framework is to maintain the interbank overnight repo rate close to the SBP Policy (target) Rate.

SBP currently does not set an intermediate target for any nominal variable; such as M2 growth, exchange rate, etc. In practice, inflation (and inflation forecast) implicitly serves as nominal anchor in the current monetary policy approach in Pakistan.
The objective of SBP’s monetary policy is to achieve price stability by controlling inflation close to its annual and medium-term targets set by the government. At the same time, SBP also aims to ensure financial stability, particularly the smooth functioning of the financial market and the payment system.

Q: What is Monetary Policy Committee and who are its members?

The Monetary Policy Committee has been established through an amendment in SBP Act 1956. The committee members include the Governor (Chairperson), three senior executives of the Bank nominated by the governor, three members of the SBP Board and three external members, who are economist, appointed by the Federal Government on the recommendation of the SBP Board. The Monetary Policy Committee is responsible to formulate and take decisions regarding monetary policy stance.

Click for the profile of current SBP’s Monetary Policy Committee members.