ISLAMABAD (ABC) – Following the latest Monetary Policy Committee (MPC) meeting, Pakistan’s economic prospects shine brighter with the moderation observed in the growth of broad money (M2), reports WealthPK.
The year-on-year decrease to 16.1% in February 2024 from 17.8% in December signals a significant development in the country’s monetary outlook.
This shift, attributed to a contraction in private-sector credit and commodity financing operations, has garnered attention from economists and policymakers alike. The shift in credit dynamics comes amidst ongoing efforts to stabilize the economy and mitigate inflationary pressures.
“The deceleration in private sector credit growth is a positive development from an inflation perspective,” remarks Shahid Javed, a senior economist at SBP.
“Lower credit growth can help alleviate inflationary pressures by curbing excessive demand and tempering consumer spending, which often fuels price increases,” he said.
Shahid said, “Indeed, inflation control has been a top priority for Pakistan’s policymakers in light of persistent price hikes and macroeconomic imbalances.
The country has grappled with elevated inflation rates in recent years, driven by factors such as supply chain disruptions, energy price fluctuations, and fiscal deficits.”
“The slowdown in private sector credit growth offers a silver lining in the fight against inflation.
By reducing the availability of credit, we can moderate consumption and investment, thereby exerting downward pressure on prices and fostering a more stable economic environment.”
While the deceleration in private sector credit growth is viewed as a step in the right direction, experts caution against complacency and stress the need for a balanced approach to the monetary policy.
Talking to WealthPK, Asim Mustafa, Regional Head at Faysal Bank, said, “While lower credit growth can help contain inflation, policymakers must also ensure that it does not unduly hamper economic activity or impede lending to productive sectors.”
Furthermore, the deceleration in private sector credit growth underscores the importance of structural reforms and policy initiatives aimed at enhancing the resilience and efficiency of Pakistan’s financial system.
“Addressing structural bottlenecks and improving the business environment are essential to stimulate investment and foster sustainable economic growth,” according to Asim.
“Continued vigilance and proactive measures will be necessary to sustain the positive momentum in inflation control.
Structural reforms to enhance the efficiency of the financial system, coupled with prudent fiscal management, will be instrumental in maintaining economic stability and fostering long-term growth,” he added.