The last couple of monetary policy statements, and over the years in general, the State Bank of Pakistan (SBP) – with the country both in and outside of an International Monetary Fund (IMF) programme – has continued to remain highly influenced by neoliberal/neoclassical economic philosophy of adopting over-board monetary austerity policy — that is seeing inflation as mainly a monetary phenomenon, and curtailing it through raising policy rate to squeeze aggregate demand mainly — and hence monetary policy has remained over-cautious.

The extent of it has been so extreme that while CPI inflation has been in single digit since August 2024, real interest rate continued to remain significantly in the positive; where currently it stands at 5.4 percent. In a developing country context, where inflation generally is at least equally a fiscal phenomenon, and in the specific context of the catastrophic flooding taking place a few months ago, clearly showing that inflationary pressures will likely mostly originate from the aggregate supply-side.

Here, among the underlying reasons for holding policy rate at 11 percent by SBP in the October 27 monetary policy statement included ‘…volatile global commodity prices; challenging export prospects amidst the evolving tariff dynamics; and potential domestic food supply frictions’, are virtually unfounded given global commodity prices, especially that of oil, continue to remain quite away from the highs in prices from a few years ago, and as indicated in IMF’s October 2025 edition of World Economic Outlook (WEO) tariffs had a much less impact than thought back in April when they were announced due to lack of tariff wars overall globally.

The WEO report pointed out in this regard, ‘To date, more protectionist trade measures have had a limited impact on economic activity and prices. …The unexpected resilience in activity and muted inflation response reflect—in addition to the fact that the tariff shock has turned out to be smaller than originally announced—a range of factors that provide temporary relief…’

SBP, therefore, is under the heavy influence of neoliberal philosophy, as reportedly reflected both through its number of recent MPS, and overall in general for many years now, and through its reported commitments given to IMF, as reflected, for instance, in IMF’s October 14 press release no. 25/345, where it is apparently in agreement with the authorities in Pakistan to continue with a cautious monetary policy stance, as pointed out in the press release as: ‘The State Bank of Pakistan (SBP) remains committed to a prudent monetary policy stance, guided by incoming data, including the impact of recent floods and the evolving economic recovery, to ensure inflation remains durably within its target range of 5-7 percent.’

The issue at hand is that while neoliberal........

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