The reduction in interest rates has the potential to hit the common man hard.
ISLAMABAD: The State Bank of Pakistan has reduced its benchmark interest rate to the lowest point in 42 years. Reducing interest rates is a favour to businesses, which will take out loans at reduced rates from banks. The idea is that it will give a boost to economic activity and may help reduce inflation.
Unfortunately, such interest rate reductions in the past have not achieved any of these aims. Economic activity is dependent on other factors too, like the provision of energy and gas. The little reduction in inflated prices is solely due to a reduction in petrol prices. This favour to businesses is also a special privilege for the community to which the rulers belong. Businessmen take huge loans and then fail to pay them back. They either simply default or get the loans written off by rulers. The reduction in interest rates has the potential to hit the common man hard. Most depositors are retired persons who have put their life savings in banks and are dependent on the interest they receive for their daily bread and butter. The reduction in interest rates will reduce their incomes.
Dr Nisar A Kayani
Published in The Express Tribune, May 26th, 2015.
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