Businessmen have demanded a competitive interest rate in Pakistan that is at par with regional countries and criticised the central bank for maintaining policy rate at 7% despite a fall in inflation level to 8.9%.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) former president Mian Anjum Nisar expressed concern that the State Bank of Pakistan kept interest rate unchanged despite a reduction in headline inflation and core inflation coupled with projection that they will fall further. He added that the risks to the outlook for both growth and inflation appeared balanced.
“In view of the policy rates in neighbouring countries Pakistan’s interest rate, at 7%, is very high and its reduction is essential to steer competitiveness in export sector as well as the local industry,” he said in a statement on Saturday.
He stressed that the positive results of aggressive cut in interest rate from 13.5% in January 2020 to 7% in June 2020 could be judged from 3.94% economic growth rate in fiscal year 2020-21.
Most economic activity data and indicators of consumer and business sentiments have exhibited continuous improvement, he said.
“On the inflation front, recent outturns are also encouraging, suggesting a waning of supply-side price pressures from food,” he said. “Inflation is expected to remain in the range of 7-9% in FY22 and move toward the 5-7% target range in the medium-term.”
The trajectory of the Covid pandemic is difficult to predict, given still-elevated global cases, the emergence of new strains and lingering uncertainties about the rollout of vaccines worldwide.
The trade and industrial sectors require continuous support from the government in form of lower interest rate amidst such external shocks, he suggested.
FPCCI Senior Vice President Shahzeb Akram said that to sustain the pace of growth and enhance it further, expansion in industrial and service sectors was needed through a decline in mark-up rate.
He added that the economy is on the right track with declining inflation and stability on external and domestic fronts.
In comments to The Express Tribune, tax expert Ashfaq Tola said that SBP should reduce policy rate to 5%.
On the other hand, Sustainable Development Policy Institute Executive Director Dr Abid Qaiyum Suleri said that status quo in the policy rate sent encouraging signals to the industrial and business community.
He said that few businessmen were expecting a hike in the policy rate given that SBP had assumed accommodative stance when Covid-19 dented the economy last year.
Pakistan Industrial and Traders Association Front (PIAF) Chairman Mian Nauman Kabir said that following the devastation caused by coronavirus in Pakistan, the country should make efforts to secure export orders cancelled by other countries.
“To achieve this, the government has to reduce production cost of the industries to encourage international buyers to purchase from Pakistan.”
Published in The Express Tribune, August 1st, 2021.
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