Academics urge cut in interest rate

Opposing a further hike in the central bank’s benchmark interest rate, academics have urged a decrease to make liquidity affordable for businesses. The continuous hike has increased the quantum of interest payments on the country’s ever-growing debt. The interest rate has remained a catalyst for the rise in inflation readings in the country as well.

“Financing available to the producer will decrease if interest rates are raised,” said Dr Atiqur Rehman, Associate Professor at Kashmir Institute of Economics. He expressed his views on the 15th interactive series of Ziauddin University (ZU) Dialogues, titled ‘Policy Rate and Ballooning Debt Servicing Cost’ via a zoom meeting, conducted by ZU, according to a press statement issued on Friday. Earlier, the central bank had increased its key policy rate by 800 basis points in 11 months (September 2021 to July 2022) to 15% at present.

Domestic debt stood at Rs16,400 billion at the time of the previous administration’s last budget in April 2018, and the government set aside Rs1,391 billion for markup payments. He highlighted that when the next administration presented its first budget in April 2019, domestic debt climbed by 14.2%, which is estimated to result in a corresponding increase in markup payment, instead, the markup jumped by 82%. He declared the ‘policy rate rise’ from 5.75% to 12.25% on April 19 to be the cause behind a sharp rise in markup payments.

The pandemic caused a drop in markup payment from 9% to 7% in the following year. “Therefore, a 25% increase in debt only resulted in a 4% increase in markup (payment in that year),” said Dr Atiq. “Seeing the damage caused by the floods, they should lower interest rates and demonstrate that they wish to assist the general public,” he added.