THE State Bank of Pakistan has taken a calculated risk by leaving its key policy rate unchanged at 14 percent for the next two months. Encouraged by the recent improvement in the country's external sector, the bank has decided to provide the government another opportunity to address the structural problems of the economy and put its own house in order, the Dawn said in its editorial. The State Bank's decision to keep policy-tightening on hold is also informed by the renewal of the joint efforts being made by the two major political parties, the PPP and the PML-N, to find a “consensus” way out of the deepening economic difficulties. Releasing the monetary policy Saturday, SBP Governor Shahid Kardar made it amply clear that the effectiveness of the efforts to contain the fiscal deficit and the government's inflationary borrowings would be of crucial importance in determining the future direction of the monetary policy. If the politicians are able to agree on some mechanism to reduce the deficit, increase tax revenues and cut wasteful expenditure, the bank could consider lowering interest rates. The bank's decision has come as a surprise to many because the market was expecting an increase of at least half a percentage point to 14.50 percent. Yet not everyone is happy. Those calling for an immediate reduction in the borrowing costs, the highest in the region, must understand that the threats – such as rising consumer inflation, fiscal slippages and energy shortages – to economic recovery remain. Still, the bank is willing to take a risk for striking a balance between growth and inflation and this should be appreciated. There is no point in finding fault with policy-tightening if inflation continues to surge. If anything is to blame for the rising borrowing costs, it has to be the government's lax and reckless fiscal policy. The bank has done only what it was required to do to protect the poor and vulnerable sections of the population from a sudden price explosion. The ball is in the court of the politicians. It is for them to decide if they want to put their differences aside and fix the economy in order to protect the masses that are reeling under rising prices. __
