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The monetary policy of the country that has the 6th largest population in the world is regulated by State Bank of Pakistan. Considering, the economic conditions of Pakistan strife with loans, inflation and trade deficit, the central bank is assigned with no easy task. Then again, being the monetary authority, it is responsible for factors that control the economic growth of country. It has recently announced the monetary policy for two months, according to which the policy rate would remain at 12%. This has been done to ensure macro-economic stability which has witnessed a greater risk in the last two months due to the increase in inflation on a monthly basis. The banking system in Pakistan which was running dry has been given the motivation to compete by encouraging depositors to invest in government securities. With a better return on their saving deposits, more consumers would look forward to investing, thus lowering the currency in circulation. However, it was the central bank itself which has been accused of printing currency notes adding to the problem of rising inflation in the country. More importantly, the rupee has lost its value by 3.2 percent compared to U.S dollar this year. If the trend continues, then keeping the policy rate unchanged will not act as a savior.

INTEREST RATE UNCHANGED AT 12%

As part of food security, the wheat support price has been increased from Rs100 to Rs1050 per 40kg. The benefits of this have not translated into profit for the farmer or the local consumer. Mismanagement on the part of government has resulted in wheat surplus going to waste. Looking below at the trade deficit, one can only hope that the government will take substantial steps to export this surplus wheat. The current account position of Pakistan shows no improvement with a deficit of $1.6 billion. This deficit is widening at a worrying speed and will not slow down unless the reliance on imports is reduced. Quite obviously, trade deficit and global oil prices are the main contributing factors. One of the aims of the monetary policy has been to encourage private investment. However, with the security concerns, international borrowing and power crisis, the government needs to do more for this aim to materialize.

A 51% increase has been seen in the number of users that have adopted branchless banking. The growth can be attributed to factors such as the introduction of mobile banking. The convenience of conducting bank transactions through cell phones and the internet is far more than waiting in long lines in front of banks. The facility of mobile banking is not only available in urban centers but also in rural areas which have been previously denied of efficient banking services. Currently, Pakistan has only one registered branchless bank that is working in collaboration with a mobile communication company to promote mobile banking among consumers. Considering, the competitiveness among mobile communication companies in PaTkistan, it wouldn't be long before other operators started providing similar banking facilities. Moreover, the popularity and provision of ATMs across the country has benefited most consumers who can draw cash at will. Such 24 hour banking services are not only low cost but also eliminate the hassle of administrative procedures.

Read more about Pakistan's economy at Pakonomy.

Pakonomy.com: the purpose of this site is to educate most people who likely know very little about the world's 6th largest country by population. Pakonomy covers everything you need to know about Pakistan's economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Beginning of June, the Cotlook A index touched the lowest point of US$0.78 since February 2010. There are a number of factors which have reduced the cotton prices so much; mainly the growers feel that other crops can yield them much greater profit margins. Another reason why the growers are moving towards other crops is the global economical crisis which has hit the euro zone the hardest. This has lowered the demand for cotton in the international markets and higher inventory levels from the previous year also forced the cotton prices to hit such a low. Due to the economic downturn in the European Union countries Pakistan's textile sector faced a massive downtick. The textile exports went from US$11.1 billion last year down to US$10.1 billion in the MFY12, which means a decrease of 10% YOY basis.

A general belief is that the textile sector has been able to reap great benefits from depreciation of the Pak rupee against dollar. As this means higher gross profit margins because of the dollar-rupee parity; however it is also noteworthy that other textile exporting countries such as Bangladesh and India faced much steeper depreciation. Bangladeshi Taka depreciated by 11% and Indian rupee by 10%, whereas the Pakistani rupee depreciated by 4.1% YOY against the dollar. So on the export front the textile industry is facing much tougher competition. Also the government of these countries has made it much easier for their industrialists to export to EU and US. The energy crisis and political situation of the country also makes doing business difficult for exporters.

Along with severe electricity shortage the sector faced hindrance in form of increased electricity tariff. The manufactures are forced to pay heavy tariffs and the lack of electricity escalates their fuel consumption. The ever increasing furnace oil prices have been eating up on their profit margins. Due to this a number of textile mill owners have shifted to alternative energy solutions such as coal and gas powered generators.

The European Union had approved to give trade concessions to Pakistan for two years back in 2010. However, to this day the implementation has been hitting delays; because earlier other textile importing countries such as India and Brazil raised a few objections whose waiver was mandatory. Now textile producing countries of the EU such as Greece, Portugal and Italy are facing worst economic crises which means businesses closing down and unemployment on the rise. They are not allowing Pakistan to avail this tariff discount package. As per concession scheme Pakistan is allowed tariff free export of 75 products to EU for the next three years. As 30% of the textile sector's total exports are to the EU countries, if these concessions are implemented it is great news for the country's textile manufacturers plus the country's foreign exchange.

EU has passed another law which gives developing countries such as Pakistan, Ukraine and Philippines opportunity to export to EU countries for no custom tariffs. However, there is a big 'if' attached to it, before the textile manufacturers take advantage of this opportunity they must implement 27 international conventions of human and labor rights, work environment and good governance.

Read more about Pakistan's economy at Pakonomy.

Pakonomy.com: the purpose of this site is to educate most people who likely know very little about the world's 6th largest country by population. Pakonomy covers everything you need to know about Pakistan's economy.