SBP governor hints at status quo in monetary policy

Stresses policy rate cannot be cut at a time of high inflation

KARACHI: It is true that Pakistan’s policy rate is higher than many countries but the rate of inflation is also substantially higher, therefore, the key policy rate will not be slashed before the pace of inflation slows down, said State Bank of Pakistan (SBP) Governor Reza Baqir. Speaking at the Karachi Chamber of Commerce and Industry (KCCI) on Monday, the central bank governor linked the cut in benchmark interest rate with the drop in inflation, giving

an impression that the rate may remain unchanged at 13.25% in the upcoming monetary policy, which would be announced on Friday. In October 2019, the inflation was recorded at 11% while the central bank has projected the rate of inflation at 11-12% for the full fiscal year 2019-20. Inflation averaged 7.34% in the previous fiscal year. The governor explained that the interest rate was decided by an 11-member Monetary Policy Committee, which included members from the private sector as well. He stressed that the central bank was initiating measures to steer ease of doing business in Pakistan and turn the environment conducive for businessmen. “The SBP has allowed advance

payment of up to $10,000 per invoice for raw material imports,” he said. “Economic situation of the country is improving and some segments are showing double-digit growth in terms of quantity.” He pointed out that the International Monetary Fund (IMF) had conducted the first quarterly review of Pakistan’s economy and the result was positive. The central bank was following a road map and urged the businessmen to show trust in the measures initiated by the bank, he said. “Circumstances will improve in the future.” He noted that economic indicators had started improving and the exchange rate had also improved in the past three to four months,

however, there was no talk about it. “When we started our journey, media experts used to criticise us every night on TV shows, which they have stopped now. That is the first sign of improvement and it is not our interpretation,” he argued.

Small and medium units Talking about the small and medium enterprise (SME) sector, he termed it vital for the economy because it generated countless employment opportunities. He informed the industrialists that the State Bank had a subsidised loan scheme, which was offered by commercial banks to the SMEs. “Some banks are doing better than others,” he remarked and urged other banks to follow suit.

He emphasised that in the past 10 years, the SBP had offered multiple loan schemes to the SMEs at 6% mark-up. “A medium-sized businessman can establish a production plant or a shop with such a loan.” He regretted that commercial banks had failed to promote the subsidised loan scheme because of low profit margins and they

only promoted loans with 17-18% mark-up. “We are promoting the subsidised loan programme through our website and interactive sessions with different organisations,” he said. “We want to create awareness of these schemes. SMEs can avail loans of Rs25 million to Rs200 million.” “If a bank does not provide subsidised loans to the SMEs, they should inform the SBP,” he said and promised swift action in that regard. He stressed that the SBP wanted to see the scheme become a success for the SME segment. “Many SMEs are not documented, hence, they cannot apply for these loans,” he regretted. Talking about women entrepreneurs, the SBP governor revealed

that the central bank offered loans at zero mark-up, which commercial banks could offer at up to 5% interest and the SBP could bear 60% of losses. Baqir said Shariahcompliant versions of all the said schemes were also available. Speaking on the occasion, former KCCI president Siraj Kassam Teli urged the central bank governor to consider reducing the interest rate as it was hindering business activities. “In line with the IMF’s demand, the SBP had left the rupee-dollar parity with market forces, which proved to be a right decision,” he said. “Now, many indicators are showing improvement like the rupee and the central bank should consider reducing the interest rate accordingly.”

Published in The Express Tribune, November 19^th, 2019.

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