THE State Bank of Pakistan, through its Board of Directors, has decided in its bimonthly review, not to cut its base rate for the next two months, thus dashing the hopes raised by the State Bank itself at the time of its last review when it cut its base rate to 13 percent on encouraging news on the domestic inflation and foreign economic crisis fronts. The cut, of one percent, was viewed as insufficient, but it was thought that there would be further cuts in succeeding reviews. However, the first review after that has shown no cut, because the Bank fears that fiscal pressure, which is the Bank's polite way of saying 'government extravagance', has kept the inflation outlook uncertain. This implies a criticism of the present government, which it does not rate as able to perform that basic task of any government faced with an inflationary situation, which is to hunker down and wait for better times. The need to do so is redoubled by the troubling news coming out of the BoD meeting that the inflation news has not kept up with expectations raised at the last meeting, and it has not fallen as much as was thought. The SBP's criticism of the energy crisis and the law and order situation also reflected failures of the government, but these should not be made an excuse for the Bank to avoid doing what it should have done: cut interest rates. The Bank's constant refrain about the failure of the private sector to increase its credit will not be addressed as long as rates remain as high as they are now. The BoD also noted that the importing nations have yet to revive after the world banking crisis, which is all the more reason for the Bank to stimulate an economy which had not otherwise been hit by the crisis anyhow. The SBP noted few signs of economic stabilization, which is all the more reason to give it a stimulus in the shape of a rate cut. The government must act sensibly and not choke off a recovery before it gets started. So there should be none of the ministerial extravagance that has become a hallmark of the present government. The BoD also decided to implement the Monetary Policy Committee, which will have five very senior members of the Bank staff, including the Governor, two members of the BoD and two external members. The MPC is supposed to decide the Bank's rate, and in future, while needed changes in the State Bank Act are made to make the MPC a fully independent body, the MPC will obtain approval of its recommendations from the BoD. Thus while the current meeting of the BoD will not be the last to give its stamp of approval to the monetary policy, it will probably be the last to act without advice from an MPC.