PBC CEO demands reduction in lending rate

Says drop in borrowing rate will let business, economy grow

KARACHI: The Pakistan Business Council (PBC), a business advocacy body, has flayed the central bank for keeping the benchmark lending rate at a higher level and has demanded a reduction to let businesses and the economy grow.

“The remaining need is to bring down the cost of borrowing,” remarked PBC Chief Executive Officer Ehsan Malik while welcoming the State Bank of Pakistan’s (SBP) decision of relaxing import and export rules to facilitate exporters.

The SBP has increased the key policy rate by 7.5 percentage points in the past two years (January 2018 to date) to 13.25% at present. The increase was made to control inflation, which shot up to 11% in October 2019 compared to 6.8% in the same month last year.

The PBC CEO was of the view that high inflation was a result of the surge in energy prices and depreciation of the rupee, which could not be controlled by keeping the interest rate at a higher level.

“Cost-push inflation resulting from sharply higher utility (power and gas) costs and devaluation cannot be curbed by a high lending rate,” he said in a statement.

“The explanations provided to support the current high policy rate are inadequate,” he said apparently referring to SBP Governor Reza Baqir’s statement on Tuesday that “the hike in the rate was inevitable to control inflation.”

Malik added it would also be unjustified to keep the lending rate on the higher side in order to attract foreign investment in short-term debt instruments like treasury bills with the aim of building the country’s foreign currency reserves.

“The high interest rate is elevating the cost of doing business in Pakistan,” he said. “The macroeconomy is stabilising as latest inflation projections are lower than before and now is the time to kick-start the micro-economy on the path of sustainable growth.” 

Published in The Express Tribune, November 14^th, 2019.

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