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Course: Advance Corporate Finance Submitted by: Saif Ali Momin (08003)

Establishment of Monetary Policy Committee

The State Bank of Pakistan established a Monetary Policy Committee (MPC) on Tuesday 26th January
2016 with the objective to develop monetary policy and related decisions independently and without
any biasness to its powers and functions and those of the State Bank of Pakistan to support general
economic policies of the Federal Government. These include:

formulate, support and recommend the monetary policy, including, decisions relating to
intermediate monetary objectives, key interest rates and the supply of reserves in Pakistan and
may make regulations for their implementation;
approve and issue the monetary policy statement and other monetary policy measures;
perform any other functions and carry out any additional activities related to implementation of its

All recommendations of the Monetary Policy Committee shall be taken by majority of members
present and voting and in the event of equality of votes, the Chairperson may exercise a casting vote.
Moreover, the Board may make regulations of procedure of the Monetary Policy Committee.

Monetary policy recommendations were earlier performed by the Advisory Committee on Monetary
Policy, which only provides the recommendations to the board. The Central Board of Directors further
are responsible for deciding the monetary policy stance of SBP. Generally, the Central Board met six
times a year, in the last week of July, September, November, January, March and May.

The new independent MPC board composition is detailed below:

Monetary Policy Commitee Board
Chairperson - Governor SBP
Senior executives of the Bank
External members - Economist nominated by the Governor
Nomination from the Board Appointed by Federal Govt. SBP
with boards recommenddation Elected for 3 years and can be
reappointed for 3 years
Mr. Riaz Riazuddin
(Deputy Governor Policy)
Mr. Saeed Ahmad
Mr. Khawaja Iqbal Hassan Dr. Asad Zaman
(Deputy Governor, Financial
Mr. Muhammed Hidayatullah Dr. Qazi Masood Ahmed Markets, IB &SI)
Mr. Zafar Masud (vacant) Mr. Jameel Ahmed
(Executive Director, Financial
Stability and Banking
Supervision Group)

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Other than the Board nominated members and senior executives nominated by SBP, the external
members are appointed by Federal Govt. with exception as detailed below:
member of the Central or Provincial Legislature; or
salaried Government official or
officer or employee of any bank; or
director of any bank other than the SBP, but directors of society registered under the Co-operative
Societies Act, 1912 can qualify.

Earlier to the establishment of MPC, the members of Advisory Committee on Monetary Policy with the
Central Board met in November 2015 as listed under:


Mr. Ashraf Mahmood Wathra Chairman & Governor SBP
Dr. Waqar Masood Khan Secretary Finance/Director
Mr. M. Nawaz Tiwana Director
Mr. Mehmood Mandviwalla Director
Khawaja Iqbal Hassan Director
Mr. Iskander M. Khan Director
Mr. M. Hidayatullah Director
Mr. Zafar Masud Director


Mr. Ashraf Mahmood Wathra Chairman & Governor SBP
Mr. Riaz Riazuddin Deputy Governor (Policy)
Mr. Khawaja Iqbal Hassan Director Central Board
Mr. M. Hidayatullah Director Central Board
Mr. Zafar Masud Director Central Board
Dr. Qazi Masood Ahmed External Member
Dr. Saeed Ahmed Chief Economic Advisor
Mr. Muhammad Ali Malik Director FMRM, SBP
*colors indicates their current position in MPC hierarchy shown previously.

From above it is clear that most of the Advisory Committee members as well as Central Board Directors
are on MPC board who were part of the Advisory Committee earlier. Consequently, it seems like the
change is in the procedural steps for monetary policy decision making. Earlier it was performed in two
steps and now single MPC with clear majority of SBP members can drive the decision making process.
Moreover, the federal government still enjoys significant influence over the SBP as the governor and
deputy governors are selected by the Federal Government and yet with this new body no transparent
mechanism is devised to publicly share the minutes and the voting records of the policy committees

One another clear reason which shows we are not moving towards making independent Federal
Reserve System is that the term of the Governor SBP (3 years) is less than the Government (5 years). In
case of US Fed Reserve full term of a Governor is 14 years and they may not be removed from office for
their policy views. The lengthy terms are intended to contribute to the insulation of the Board from
day-to-day political pressures.

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