The objective of this paper is to assess the conditions for independence of state bank of Pakistan. The recent studies around the world are emphasizing more on independent central bank. This paper argues the case for independent central bank in Pakistan as a policy option to achieve economic and political stability. The government has given independence to central bank and it is working a label of autonomous state bank but to check this claim this study has been conducted to judge the central bank independence. Applying the VAR technique for the data of M1, M2, inflation, interest rate and GDP, the results have shown us that the results are inconsistent over the period of time. The paper also measures the State Bank of Pakistan’s level of preparedness for the possibility of adopting economic independence, for which transparency and autonomy are prerequisites. Our results shows the degree of independence in state bank of Pakistan is somewhat low reflected by relationship of M1,M2 with the inflation, interest rate and GDP growth rate. The political and economic independence index has shown that the state bank of Pakistan is not working independently.

BBA