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Inflation targeting-lite: strategic transition or operational stopgap? | The Express Tribune
In Pakistan, tight monetary policy coincides with increasing inflation due to supply shocks, which undermine rate sign
Market analysts caution that IMF-related measures in the upcoming FY2026 budget—particularly new taxes and adjustments in energy prices—may lead to a renewed spike in inflation. PHOTO: FILE
MICHIGAN/KARACHI:
In August 2009, the State Bank of Pakistan (SBP) officially changed its monetary policy framework from monetary aggregate targeting to interest rate-based monetary policy framework called the inflation targeting-lite regime by introducing the interest rate corridor (IRC).
Within international systems, the adoption of IRC would be a transitional move for implementing a flexible or full-fledged inflation targeting monetary policy framework, where the policy rate is used as a primary tool for anchoring inflation expectations (Stone, 2003). Indeed, most of the inflation targeting central banks place corridor systems not only to stabilise overnight rates but to anchor these rates around a policy rate to strengthen monetary policy transmission and policy signalling. This has been quite contrary to the case of Pakistan, where a significant domestic literature and official SBP communication, such as working papers, research bulletin, and policy notes emphasise that the IRC was introduced as a means of reducing volatility in the weighted average overnight repo rate (repo), which has weakened policy signalling and disrupted money markets (Mahmood, 2016).
Moreover, the SBP’s working papers and policy notes also document how liquidity shocks, often driven by government cash flows and FX operations, caused overnight rates to deviate from the policymakers’ desired levels prior to 2009. The objective of reducing volatility in the repo, being operationally valid, goes against the global justification of inflation targeting-lite regime, that is, reduction in volatility is not an objective but a by-product of a smooth and coherent monetary system. Thus, the IRC was implemented into an economy where the macroeconomic conditions for interest rate-led inflation control were partially established.
It would not be the design of corridor which is challenging but the surroundings where it functions. The inflationary trends in Pakistan are heavily influenced by administered prices, especially energy, college tuition, and regulated food items, which can get adjusted through fiscal adjustments but not market forces. These non-continuous changes, which are frequently large and discrete, can undermine the relationship between policy rate and headline inflation. Consequently, the tight monetary policy coincides with increasing inflation due to supply shocks, which undermine interest rate signalling.
Pakistan is simultaneously experiencing the limitations of the monetary policy trilemma. External imbalances and exchange rate pressures are persistent, which often leads to the balance of payments conditioning of monetary policy decisions. Practically, this leads to the phases where interest rate is as influenced by external stability as it is influenced by domestic inflation and output growth. As a result, liquidity shocks are generated by FX interventions that the IRC must absorb to stabilise the money markets. This strengthens the IRC’s role as the stabiliser of money markets and not as an anchor of expectations.
Such limitations highlight why the inflation targeting regime, be it strict or flexible, has eluded it even though this has been expressed in terms of policy aspiration in the SBP’s Vision 2016-2020. Demand-driven inflation, flexible exchange rate, and limited fiscal dominance are the key elements required to stipulate inflation targeting. However, these conditions are fulfilled partially in Pakistan, which results in a system where the objective of inflation targeting exists but with a weak functional core.
Notably, this does not mean that Pakistan should drop the interest rate corridor or adopt monetary aggregates targeting. Neither does it imply that the targeting of inflation should be mechanically adopted and that structural reality be violated. The important step is to implement a transparent and flexible structure, which highlights and acknowledges Pakistan’s constraints and not obscure them.
This type of structural framework whose primary medium-term objective should be price stability, and policy is carried out with clear secondary constraints, the most important of which is external stability and administered price shocks. Rather than a point target, a medium-term inflation rate is announced by the central bank with special concentration on forecasts made publicly available. This will ensure transparency of the framework and add to the credibility stock of the central bank. Deviations that are temporary are acceptable, if they are well explained. This framework would ensure that instead of hidden goals, exchange rate pressures, reserve adequacy, and risk premium are treated as the conditioning variables. The decisions on policy rates have been explained as weighing between inflation stabilisation and external sustainability as a reminder of discretion with accountability. Credibility is anchored on transparency.
In this context, the policy rate role is re-defined. It is no longer supposed to tighten or loosen demand or to counteract the inflation produced by supply mechanisms. Rather, it pegs expectations over the medium term, constrains second-round effects and conveys commitment when the economy is under strain. The interest rate corridor appropriately works as a liquidity management tool, which ensures that there is smooth market functioning with operational control, without the strains associated with the responsibility of macroeconomic credibility, on its own.
In the long run, this structure enables sequencing as opposed to being subject to shock therapy. Reforms in administered pricing, improvement in exchange rate flexibility and reduction in fiscal dominance may relax the constraints on monetary policy over time. Flexible inflation targeting then develops naturally, as a matter of adaptation and not imitation. The introduction of the IRC to Pakistan provides more of a general lesson, that is, the sophistication of operations cannot replace the clarity of strategy.
By taking its monetary framework and its structural realities to be in accord with each other, and by ensuring the trade-offs are clear, the SBP can get closer to inflation targeting, not as an imported model, but rather as a nationally consistent policy regime.
Dr Ateeb Syed is a visiting professor of economics at Grand Valley State University, Allendale, Michigan and Tayyaba Kamran is a research assistant at the Economic Growth and Forecasting Lab, IBA
Business
RBI’s Rs 25,000-Crore Switch Auction On March 2nd And Its Impact On Bond Markets, Government Debt Strategy | Explained
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RBI Switch Auction On March 2: The Reserve Bank of India will conduct a government securities switch auction worth Rs 25,000 crore on March 2 between 10:30 AM and 11:30 AM
In the latest exercise, all securities, having maturities in FY27, are being replaced with bonds maturing after FY32.
RBI Switch Auction On March 2: The Reserve Bank of India (RBI) will conduct a government securities switch auction worth Rs 25,000 crore on March 2 between 10:30 AM and 11:30 AM, with results to be declared the same day and settlement scheduled for March 4. The move marks the third such operation this month and is aimed at smoothing India’s future debt repayment profile.
What is a switch auction?
A switch auction is a debt management tool through which the government exchanges bonds that mature soon with bonds that mature later. Instead of repaying investors in cash when near-term securities mature, the government offers them longer-dated securities. This effectively postpones repayment obligations without increasing total debt.
In the latest exercise, all securities, having maturities in FY27, are being replaced with bonds maturing after FY32, according to RBI data.
Why is RBI conducting it now?
The key trigger is the heavy redemption pressure expected in FY27, when government securities worth about Rs 5.47 lakh crore are scheduled to mature. By replacing these with bonds maturing after FY32, the authorities are spreading repayment obligations across future years. This reduces refinancing risk and prevents sudden spikes in borrowing needs.
How does it help the government?
India has already budgeted gross market borrowing of Rs 17.2 lakh crore. Large redemptions in a single year would force the government either to borrow more or use fiscal resources for repayment. Switch auctions smooth this maturity profile, making debt servicing more predictable and fiscally manageable.
What has happened so far this month?
Before this latest announcement, the RBI conducted two switch auctions in which securities worth Rs 84,804 crore were bought back and replaced. The repeated use of this tool signals a proactive debt-management strategy rather than a reactive measure.
Why markets watch switch auctions closely
Bond investors track such operations because they affect liquidity, yield curves and supply of long-term securities. Extending maturities can reduce pressure on near-term yields while increasing supply at the long end, influencing pricing across the sovereign curve.
The broader takeaway
The latest switch auction is part of a deliberate strategy to manage India’s rising debt stock more efficiently. By pushing repayments further into the future and avoiding bunching of maturities, policymakers aim to maintain stability in government borrowing costs and ensure smoother fiscal operations in coming years.
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February 26, 2026, 11:11 IST
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Vellayan Subbiah, a scion of the Murugappa family, has reached a settlement with other promoter branches to realign ownership
Cholamandalam Investment Finance
Vellayan Subbiah, a scion of the Murugappa family, has reached a settlement with other promoter branches to realign ownership across key group companies, according to a report by Moneycontrol.com, citing people familiar with the matter. The agreement is expected to see Subbiah give up stake exposure linked to Cholamandalam Investment and Finance Company while consolidating his position in Tube Investments of India and CG Power and Industrial Solutions.
The arrangement, finalised after more than two years of negotiations, forms part of a broader plan by the Murugappa Group to separate ownership of the century-old conglomerate among three promoter factions while ensuring business continuity. Under the settlement, Subbiah is expected to relinquish exposure to Cholamandalam Investment — the group’s flagship lending arm — and instead retain and strengthen his alignment with Tube Investments and CG Power, including taking over or retaining stakes tied to those companies within the extended promoter structure, the report said. Emails sent to Subbiah and the Murugappa Group did not receive a response until publication.
The realignment follows prolonged internal discussions over the division of the diversified business empire, which reported revenue of more than $9 billion in FY23, after five generations of joint ownership through the family holding company Ambadi Investments.
Negotiations had earlier faced hurdles due to significant valuation divergences across group companies. As previously reported by The Economic Times on August 19, 2024, the turnaround of businesses overseen by Subbiah — particularly CG Power, Tube Investments and Cholamandalam Finance — had emerged as a sticking point in share-swap discussions among family factions.
The revival of CG Power proved especially pivotal. Since Tube Investments acquired control in 2020, CG Power has deleveraged, restored profitability and benefited from investor interest in domestic manufacturing, railways, power equipment and electronics supply chains. Its stock has surged since the takeover, making it one of the group’s most valuable listed assets. Tube Investments has also diversified beyond its legacy engineering base into green mobility, contract manufacturing and specialised industrial segments, strengthening its market position.
Cholamandalam Investment, meanwhile, has grown into one of India’s most valuable non-bank lenders, with a market capitalisation exceeding Rs 1 lakh crore. The uneven appreciation in these businesses complicated efforts to carve out three equal promoter blocs, with one faction seeking revisions to earlier share-swap assumptions and another resisting reopening agreed terms, people cited by Moneycontrol.com said.
Promoter ownership across Murugappa companies is largely routed through holding vehicles rather than direct individual shareholdings, but the concentration of value highlights why these firms were central to negotiations. The promoter group’s roughly 51–52 percent stake in Cholamandalam Investment is estimated to be worth about Rs 55,000–60,000 crore at current market levels. In Tube Investments, promoter ownership of around 45–46 percent translates into holdings valued at approximately Rs 20,000–22,000 crore. Through Tube Investments’ controlling position in CG Power, the promoter group effectively holds about 58–59 percent of that company, valued at roughly Rs 45,000–50,000 crore.
Beyond these, the family controls about 56–57 percent in Coromandel International, worth around Rs 18,000–20,000 crore; 42–43 percent in Carborundum Universal, valued near Rs 9,000–10,000 crore; and 44–45 percent in EID Parry, worth roughly Rs 3,500–4,000 crore. Tube Investments also indirectly controls about 70 percent of Shanti Gears, valued at approximately Rs 2,500–3,000 crore.
The final arrangement appears to align ownership more closely with operational leadership. Subbiah, a fourth-generation member of the family, is widely credited within the group for steering the revival of CG Power and expanding Tube Investments into new manufacturing and mobility segments, making these businesses natural anchors for his promoter bloc under the new structure.
The Murugappa Group, which comprises nearly 30 companies across fertilisers, engineering, financial services, abrasives, sugar and mobility solutions, operates under a long-standing governance charter that separates ownership from management, the Moneycontrol.com report noted.
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February 26, 2026, 10:51 IST
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RBI has summoned senior officials of Yes Bank following a major data breach involving the Yes Bank–BookMyForex multi-currency forex card
Reserve Bank of India headquarters in Mumbai.
The Reserve Bank of India (RBI) has summoned senior officials of Yes Bank following a major data breach involving the Yes Bank–BookMyForex multi-currency forex card, two people aware of the development told The Economic Times (ET).
According to the report, card details and CVV numbers of several users were allegedly compromised. The central bank has sought a detailed explanation from the bank on how its systems may have been breached and the sequence of events that led to the exposure of sensitive customer data.
“The RBI has sought a comprehensive briefing from Yes Bank’s senior management on the root cause of the breach, the timeline of events, and the adequacy of the bank’s cybersecurity framework,” one of the persons cited by ET said. “The regulator wants clarity on how sensitive card data, including CVV numbers, may have been exposed and what immediate containment measures have been implemented.”
Yes Bank declined to comment on the RBI’s queries but said an internal investigation had identified fraudulent transactions involving 15 merchants in a Latin American country on February 24. Transactions worth Rs 2.54 crore were approved across 5,000 customers, while 688 unauthorised attempts amounting to around Rs 90 lakh were blocked. The bank said it is working with the card network to initiate chargebacks and ensure that affected customers do not face financial losses.
Separately, BookMyForex said it does not store customers’ sensitive card information and that its systems were neither breached nor compromised during the period in question.
The RBI has also sought details on how sensitive card data—particularly CVVs—was stored and protected, whether encryption and prescribed security protocols were followed, and why existing cyber controls failed to prevent the breach. In addition, the regulator is reviewing the timeline of detection and reporting, the robustness of third-party risk management and oversight, the number of customers impacted, and the steps taken to block cards, prevent misuse and mitigate losses. It has also asked for clarity on internal accountability, supervisory lapses and remedial measures to prevent a recurrence, ET reported.
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February 26, 2026, 07:53 IST
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