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Monetary Policy

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Monetary Policy Decision-Making Body

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is a statutory body formed and responsible for formulating the monetary policy under Sections 9D and 9E of the SBP Act. It consists of 10 members:

  • Governor SBP (Chairperson)
  • Three senior executives of the Bank, nominated by the Governor
  • Three members of the SBP Board, nominated by the Board
  • Three external members appointed by the federal government, upon the recommendation of the SBP Board

The MPC is responsible and fully empowered to decide the monetary policy stance. Section 9E of the SBP Act 1956 (amended up to 28-01-2022) lays out the powers and functions of the Monetary Policy Committee that have been mainly identified as to:

  • Formulate the monetary policy, including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in Pakistan and may make regulations for their implementation
  • Approve and issue the monetary policy statement and other monetary policy measures
  • Perform any other functions conferred on it by law
  • Carry out any ancillary activities incidental to the exercise of its functions under this Act

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Members of Monetary Policy Committee

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Time Lag of Monetary Policy Transmission

It is important to note that monetary policy does not impact the economy instantly. While short-term rates such as the overnight repo rate, may adjust immediately, the full effects on economic growth and inflation often take 1-2 years to materialize as households, businesses and banks gradually adapt to changes in interest rates.