Half-yearly monetary policy unveiled

THE half-yearly monetary policy statement (MPS) has been unveiled by the central bank. The governor hopes the framework will seek to reduce inflation and provide sufficient space in lending to achieve broad-based investment. Keeping inflation within the 7 per cent mark however will be challenging as banks cut interest rates to make available more funds. The danger of cheaper funds made available to clients by banks could trigger greater borrowing and utilisation in unproductive sectors like the stock market and real estate – not the sort of investments required to boost GDP growth rate that has now been revised down to 6.3 per cent.
Another area of concern remains public borrowing. With the wide range of 'incentive packages' being handed out to various sectors of the economy in an effort to offset losses of the preceding quarter due primarily to hostile politics, to what extent government borrowing from state-owned banks (SCBs) can be curtailed is a major question.
The policy aims to further build up foreign reserves in the second half of the current fiscal. Here too remain significant challenges. Foreign exchange earning depends to a large extent on the ability of government to spur up manpower earnings by exploring new markets and consolidating existing ones.
In the final analysis of things, the success of the monetary policy will depend on investors' confidence and that in turn hinges largely on political stability. Unless normalcy returns to the political arena, wooing back investors in large numbers to any productive sector will be a difficult proposition.