SBP’s Performance Since 2018 Given the actual changes in the policy rate and exchange rate each year from 2018-19 to 2021-22 and the above coefficients the overall impact of monetary policy has been derived on GDP growth rate, the rate of inflation and the budget deficit in Table 2.7. It may be observed that the size of the impacts is relatively large. The process of financial stabilization, especially of the external balance of payments, since 2018-19 has implied a significant reduction in the GDP growth rate and a higher rate of inflation. However, the year 2020-21 is an exception, when monetary policy played a major role in helping the economic revival process after COVID-19. Table 2.7: Estimated Impact on Macroeconomic Variables of Monetary Policy 2018-19 to 2021-22 (Combined Impact of Changes in Policy Rate and Exchange Rate) –(%) GDP Growth Rate Rate of Inflation Actual Impact Actual Impact 2018-19 2.1-2.2 6.8 2.8 2019-20-0.5-1.8 10.7 1.9 2020-21 5.7 1.5 8.9-1.8 2021-22* 6.0 0.5 12.2 2.8 *Up to April 2022 Given that the primary objective of the SBP is to maintain price stability, the Macroeconomic Model has also been used to determine the quantitative contribution of different factors to inflation annually in Pakistan from 2017-18 to 2021-22. The estimates are presented in Table 2.8. Table 2.8: Magnitude of Contribution of Different Factors to Inflation in Pakistan 2017-18 to 2021-22 (%) Contribution by Inflation Monetary Rate of Net Imported Inflationary Residual Total Expansion* Inflation** Expectations*** 2017-18 3.9 18.7 46.2 36.3-1.2 100.0 2018-19 6.8 33.5 37.6 19.3 9.6 100.0 2019-20 10.7 86.9 3.8 21.3-12.0 100.0 2020-21 8.9 57.4 13.8 40.3-11.5 100.0 2021-22 12.2 34.5 39.1 26.2 0.2 100.0 *Net Monetary Expansion= Growth of Money Supply(M2), lagged by one-year minus GDP growth rate **Imported Inflation= Growth Rate of Import Prices(in$)+ Extent of Depreciation of the Rupee ***Inflationary Expectations measured by the rate of inflation lagged by one year. 33