The inflation conundrum

In a recent Dawn article, the authors — a former governor of the State Bank of Pakistan (SBP), chairman of Habib Bank Limited and president of Bank of Punjab — have discussed in detail a serious problem of Pakistan’s economy: unsustainably high level of currency in circulation (CIC). Apart from unleashing other miseries in the economy and society, consistent buildup in CIC keeps fueling inflationary pressures and continues to frustrate the primary objective of interest rate tightening, which is reining in inflation. The most immediate reason behind the recent rise in inflation has undoubtedly been the energy price hikes. However, an unacceptably high share of CIC in our total money supply (39 per cent as of June 2023) remains a consistent underlying factor.