we have had, more or less, double - digit inflation for the past 4 years now, prices are very quick to adjust. therefore, the impact on aggregate demand through the real interest channel is muted. on the contrary, we have observed that the lending channel via the banks is quite robust. in fact, the transmission of monetary shocks through the lending channel is asymmetrically distributed ; smaller banks, which have a higher cost of funds, tend to amplify monetary shocks for smaller borrowers. in fact, the bank lending channel is the primary channel through which monetary policy is transmitted to the real economy in pakistan. on a related side - note, it ’ s important to mention that pakistan has moved away from credit allocation policies and now let ’ s the market decide both the quantity and the price of credit to various sectors. the country has also liberalized its foreign exchange markets and lets the forces of demand and supply dictate the rupee exchange rate. while this is an important step towards greater global integration, it has meant that the exchange rate channel is particularly relevant now – especially due to the implications that it has for inflation. given the influence that full exchange rate pass - through has, sbp monitors the foreign exchange market very closely. finally, monetary policy may also influence inflation through the expectations channel. i can think of no better example to illustrate the mechanism of the expectations channel than paul volcker ’ s time at the helm of the fed. having credibly committed to tackling inflation, volcker raised rates drastically and managed to weed out the inflationary expectations that had taken root in the american economy after the oil shocks of the 70s. in my opinion, the two decades of low inflation that the american economy enjoyed following volcker can at least be partially attributed to the suppression of inflation expectations. in fact, i also believe that a large part of the persistence of inflation in pakistan ’ s economy is due to the sustained period of high inflation, which has allowed inflationary expectations to incubate. the transition from understanding these channels to developing the proper mechanisms to impact our objectives may not be smooth. after all, we should concede that there are some things that we have absolutely no control over in the short - run. similarly, a certain policy measure may also produce conflicting outcomes, such as a reduction in inflation but a rise in current and fiscal accounts ; how should we proceed then? we need to stay abreast of a very steep learning curve and constantly keep checking

ashraf mahmood wathra : payment systems and correspondent banking in the saarc region speech by mr ashraf mahmood wathra, governor of the state bank of pakistan, at the national institute of banking & finance ( nibaf ), islamabad, 16 may 2016. * * * ladies and gentlemen : assalam - o - alaikum and good morning. i am privileged to welcome all the distinguished participants and speakers on behalf of sbp, my colleagues and saarc friends at the seminar who have gathered here today to exchange views on payment systems and correspondent banking. at the outset, let me share with you that since the 10th saarc summit in 1998, the saarcfinance group has been a key gateway that has allowed regulators to gather at the forum and share their experiences about the efficacy of the existing policy framework, identify the emerging challenges, and brainstorm ideas to tackle these challenges. over the years, the saarcfinance group has taken a number of constructive initiatives to achieve the objective of regional economic cooperation and trade facilitation. since the year 2002, state bank of pakistan has been organizing seminars under the umbrella of saarcfinance ; these events have covered topics as diverse as monetary policy, sme financing, basel - ii, consumer protection, risk management and internal audit. one of the major objectives of the saarcfinance group is to strengthen payment mechanisms to boost intra - regional trade. to achieve this, i feel it is imperative that regulators, especially those from our region, interact and coordinate with each other to address the policy gaps and bottlenecks impeding intra - regional trade, commerce and remittance flows. during the last few years, state bank of pakistan has taken a number of steps to improve the efficiency of our domestic payment system. we have a comprehensive payment systems act, a well functioning rtgs, and a branchless banking system that provides payment related services to ordinary customers through an expanding network of around 300, 000 agents. we also have the pakistan remittance initiative ( pri ) that is playing a significant role in facilitating overseas pakistanis in sending home remittances through legal channels, in partnership with commercial banks. pakistan has also implemented the international bank account number ( iban ), which plays an important role in integrating various domestic and cross border payment systems. recently, we have also issued regulations governing the security of internet banking services offered by commercial banks to ensure that international