SBP turned out to be even more hawkish in its monetary policy outlook than the market expected, which had factored in a 100bps rise. Yet the benchmark interest rate was raised 150bps to 8.75pc in one fell sweep. Since the Bank also raised the capital reserve requirement (CRR) for banks by a one percent just a few days ago, it is very clear that the lose money bonanza has now come to an end. SBP also pulled the Monetary Policy Committee (MPC) meeting ahead by one week to make the announcement, because of “recent unprecedented developments”, but it soon became very clear that the only development that prompted the decision was the steep devaluation of the rupee, which may be unprecedented but it was certainly not recent. The word on the street now is that Governor Reza Baqir, an IMF man, has made the adjustment that the international lender wanted before reviving the Extended Fund Facility (EFF). There are also rumours of some friction between the finance ministry and the central bank because, allegedly, Governor Baqir gave Finance Advisor Shaukat Tarin a rather tough time over all the troubles with his Silk Bank; and now that the latter is the chief architect of the country’s fiscal policy, there’s the outside chance that he might want to interfere with the monetary sector. All that is just chatter till there’s some proof, of course, but rumours have a tendency and indeed a long history of causing unforeseen and unnecessary movement in financial markets, so the less of them are spread the better. It can only be hoped that monetary tightening might solve some of the economy’s problems, like the weak rupee and high inflation. Yet even though the rupee is likely to stop its slide, at least briefly, there are doubts about inflation responding to interest rate because it is cost-push not demand-pull. The bank will have to keep a close watch on money supply also because it was our higher interest rate than most other countries, even at 7pc, that prompted a feverish rush of hot money into the economy, which first propped it up then also caused it collapse when it left as swiftly as it had come. These are unprecedented times, for sure, as one experiment ends and another begins. The country will now have to move from banking on easy money to stimulate the economy to counting on IMF’s aid to do the trick. The party, in simpler words, is over. *