Inflation over 6% likely to hamper Pakistan’s economic growth

Inflation over 6% likely to hamper Pakistan’s economic growth

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KARACHI: Inflation above 6% is likely to hamper economic growth in Pakistan and would require a careful policy to maintain a balance, read a research paper released by the State Bank on Thursday.

“Inflation below 5.67% may be favorable for economic growth while above 6.05pc can hurt growth,” said the paper.

The paper found inflation to have an unparalleled relationship with growth which explains why it affects growth positively when it is low and persistent, and negatively when it is considerably high.

According to the research, the historical average real GDP growth rate has been more than 5% during low inflation periods (below 6%), and 4.7% during very high inflation periods (above 6%).

There was only one year (FY1990) when inflation was exactly at 6% and average real GDP growth was recorded 4.6%, relatively lower than its historical average recorded.

“A more careful policy is required when inflation crosses the threshold level,” read the paper. The threshold level was spotted in the range of 6.05% and 5.67%.

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