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Real and monetary

20 24 0

The monetary policy has divorced itself from the real sector. The interest rate and the exchange rate have been subordinated to a single goal: accumulation of reserves, irrespective of what happens to production, consumer demand and poverty. The result is that the real economy is in shambles and a turnaround is not on the horizon.

The stabilization agenda fashioned in varying measures since FY2019 has ostensibly focused on a cumulative devaluation of 45 percent (with minor improvements since June), doubling the policy rate (from 6.5 percent to 13.25 percent) and imposing heavy taxation (tax effort of Rs750 billion) all aimed at suppressing the demand. There is little in the policies to mitigate the ensuing adverse consequences.

Every two weeks one looks at the key indicators of the real economy – output in industry and agriculture, prices, investments – in the hope that there would be some good news. Unfortunately, the economy continues to present a bleak outlook. The real economy doesn’t seem to feature on the dashboard of policymakers as the focus has concentrated on monetary stability.

The decline in production of large-scale manufacturing is unprecedented. In January 2019, the quantum index of manufacturing (QIM) was recorded at 169.28 which has declined uninterruptedly to 128.34 in November 2019, representing a loss of nearly 25 percent in production. It would not be misleading to construe that one quarter of industrial output has vanished. In Jul-Nov alone, the decline in LSM is nearly 6 percent.

The industries that have........

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