‘This chapter has shown that the NMPC [New Monetary Policy Consensus] is limited in four important ways. Firstly, it is based on doubtful assumptions, unwarranted generalisations, overly optimistic expectations about convergence to a virtuous circle of prosperity, and the questionable ability of neoliberal policies to extricate the economy from finance-driven crises. Secondly, the NMPC imposes low inflation targets that can lock the economy into a pattern of low growth, high unemployment and potentially intractable problems of poverty and inequality. Thirdly, it offers only blunt and inefficient policies against inflation, grinding it down through potentially long periods of high unemployment that reduce the economy’s growth potential while increasing its financial fragility.

Fourthly, hyper-vigilance against inflation, which is built into IT [inflation targeting] and CBI [central bank independence], is incompatible with rapid and equitable growth, because it fosters the interests of finance at the expense of the majority of the population and locks countries into economic development strategies that are inimical to the achievement of democratic outcomes… Given these limitations, why does the mainstream place so much emphasis on IT and CBI, as is demonstrated even by a cursory perusal of IMF [International Monetary Fund] publications and the writings of most mainstream macroeconomists? Several contributing factors can be readily identified.

First, mainstream theory is structurally predisposed to see value in IT and CBI, since they share the same methodological foundations …Second, IT and CBI are hegemonic under neoliberalism. They have become part of the ‘common sense’ of the age, and these policy recommendations tend to creep unthinkingly into even heterodox discourse.’ – An excerpt from Chapter 26 ‘Monetary policy and Neoliberalism’ published in a 2018 ‘SAGE’ published book ‘The SAGE handbook of Neoliberalism’

It is well established in economic literature, and in empirical studies researching determinants of inflation in developing countries, including Pakistan, that in general it is at least equally determined by aggregate supply-side determinants, and not predominantly by aggregate demand-side.

In general, it is witnessed in the case of not only a number of developing countries, but also developed countries, that not only inflation remains stubborn even when policy rate is increased to high levels, meaningful and sustainable drop in inflation requires high level of positive real interest rate – as has been the case in Pakistan – which means that on one hand monetary austerity is being overused, while aggregate supply side focus remains limited in controlling inflation, and on the other as a consequence a lot of economic growth sacrifice is unnecessarily given.

For instance, even when policy rate was being raised inflation was rising in Pakistan – due to higher policy rate contributing to higher cost-push inflation on one hand, and larger burden of interest payments on debt bringing in greater imported inflation on the other........

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