SBP blames high govt borrowing for diluting tight monetary policy impact

Excessive government borrowing from the banking sector, indirect taxes, and the informal economy dilute the impact of tight monetary policy in controlling inflation, a senior official of the State Bank of Pakistan (SBP) said on Tuesday. Dr. Fayyaz Hussain, Additional Director, Monetary Policy Department, SBP, stated this in a webinar on the topic of ‘Managing Stability During Uncertain Times: Role of Monetary Policy in Pakistan’ organised by Pakistan Institute of Development Economics (PIDE). He said that excessive borrowing from the banking sector affects the demand and objective of tight monetary policy. Apart from this, it also crowded out the private sector from borrowing because banks have more incentive to lend money to risk-free government securities.