Monetary Economics

Assignment no 1

Monetary economics

Msc economics

Semester 3

Roll no: 10030821-006

Submitted to: sir bader

Submitted by: anam razak
Q: why state bank of Pakistan down its discount rate?
State bank of Pakistan down its discount rate because:
1: month on month inflation is increasing
2: decline in SBP foreign exchange reserve
3: weak private sector credit growth and falling real private investment expenditures remain along with a likelihood of rise in real interest rates.
4: severe energy crisis
5: annual GDP growth target has increased due to damaging impact of recent flood in Sindh.
6: Pakistan’s export-destination countries do not provide much confidence either.
7:  probability of meeting the FY12 inflation target together with a need to support private sector credit and investment growth.
8: decline in government borrowing from the central bank.
9: for expansion in the private sector credit
10: State Bank to bring down discount rate to attract investment and reduce unemployment which will ultimately alleviate poverty.
11: The main reasons include a growth of 42 percent in oil   import payments.
The economies of the world, he said, are mostly having single digit discount rate but in Pakistan it is in double digit for the last so many years.
Q: Why there is increase in month on month inflation?
The year-on-year inflation in September 2011 has come down to 10.5 percent from 13.3 percent in June 2011 though month-on-month inflation   is still more than 1 percent on average. An expected seasonal rise in inflation in the first month of a new fiscal year, the Ramazan seasonality of food prices, and the unexpected effect of flood on inflation   have all coincided in the months of   Q1-FY12. Thus, isolating temporary changes from underlying inflationary pressures is more demanding at this point in time   though the probability of meeting the   12 percent average CPI inflation target for   FY12 remains high. There are upside risks, however, in...