An Introduction to Monetary Policy Framework of Pakistan Instruments, Objectives, and Mechanism

In an economy, a central bank's behaviour in formulating monetary policy is characterized by some specific actions. These actions meet the complex process of decisions about how a central bank regulates its policy instruments responding to the macroeconomic environment. In case of Pakistan, State Bank of Pakistan (SBP) has mandate to regulate the monetary and credit system through a variety of monetary policy instruments and implementation mechanism. Despite empirical studies on subject, monetary policy mechanism of SBP is comparatively less explored by connecting the policy stances to financial markets. We present a comprehensive review of the framework of monetary policy with modern monetary policy instruments. This study is equally important for researchers, investors, and bankers an insight into procedures of monetary policy of SBP. Similarly, it also helps stakeholders of corporate sector and SMEs to allocate their resources efficiently after knowing the policy mechanism of central bank