Abstract:
Pakistan is in an economic crisis, owing to a
slowdown in the world economy for a good two
years. One major issue Pakistan is dealing with
is that of rising price levels. State Bank of
Pakistan (SBP) is taking several measures to
curb this growing inflation. Monetary policy
enforced by SBP now will primarily be
dependent on the trend in inflation i.e, focussed
on curtailing inflation in the future. The tools of
Monetary policy under SBP’s control include
discount rate, cash reserve requirement ratio
(CRR) and open market operations. Using
these tools SBP is not only controlling the
supply of funds but also the availability of
money and the cost of money, in line with
achieving a certain set of goals related to
economic stability and growth, to be specific,
lower inflation. In the process of studying the
current monetary policy i.e, measures taken by
SBP to curtail inflation, monthly data was
obtained on CPI index, discount rate, CRR and
3-month T-bill rate for 4 years. This data was
then graphically represented to analyse the
trend. In addition to that, the data was also
regressed so as to develop proper models. The
data analysis clearly indicates the extent to
which each tool’s use was focussed on
controlling inflation and bringing it back to
normal levels
