Editorial
The State Bank of Pakistan holds interest rates below what the market truly demands. This is not accident. This is design. And the design serves a government addicted to spending it cannot fund through honest means.
Consider the mechanism. When a central bank keeps policy rates artificially suppressed, it does not merely nudge markets: it distorts them. Savers are punished. Borrowers, particularly the sovereign borrower, are rewarded. The government, forever hungry for more expenditure, finds in the SBP a compliant lender of last resort. Printing money becomes the quiet substitute for painful fiscal discipline.
Milton Friedman warned us decades ago: inflation is always and everywhere a monetary phenomenon. Pakistan offers a textbook illustration. When the state cannot tax enough, and will not cut enough, it turns to the printing press. The result is inflation, that most regressive of taxes, falling hardest on those least able to bear it: the daily wage earner, the pensioner, the small shopkeeper watching his rupee shrink month after month.
Ask yourself: why does a government tolerate an inflationary spiral that erodes its own currency and credibility? Because the alternative, genuine fiscal restraint, demands political courage that few possess. Raising real interest rates would mean higher borrowing costs for the state itself. It would mean confronting the ballooning expenditure that no government wants to trim. So the easier path is chosen: keep rates artificially low, let the printing press do the work, and let inflation quietly tax the public instead.
This is not monetary policy. This is monetary capture. The central bank, meant to be independent, becomes an instrument of fiscal convenience. Until Pakistan’s state learns to live within its means, the SBP will remain trapped: printing money today, apologizing for inflation tomorrow, and repeating the cycle without end.
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