ABSTRACT
The Pakistani government has been facing a serious fiscal stress and the recent budget is an indication of this stress. The main contributor to this fiscal stress is the servicing of public debt. According to the data available on the website of the State Bank of Pakistan (SBP), by April 2019, about 60% of the domestic public debt was short-term debt, and most of this short-term debt was in the form of three months’ treasury bills. The policy rate is an instrument used by central banks to achieve certain objectives including price stability and growth. This chapter analyzes the consequences of increase in policy rates and reviews whether or not the monetary policy can achieve its objectives through the policy rate. In Pakistan, employment is one of the least cited terms in monetary policy statements, and the term has not appeared anywhere in the SBP Act, 1956, which provides the legal cover to the SBP and the Monetary Policy Committee.
