‘High policy rate not a solution’
The State Bank of Pakistan (SBP) has decided to raise the policy rate. PHOTO: FILE
The Federation of Pakistan Chambers of Commerce (FPCCI) former president Mian Anjum Nisar, on Saturday, said that the State Bank of Pakistan’s (SBP) decision to raise the key policy rate will ruin the economy, jobs and the government’s revenue.
Opposing the central bank’s decision to jack up the key policy rate by 100 basis points taking it to 16%, the highest since 1998, Nisar said, “Pakistan’s interest rate was already very high in contrast to the markup rates in the regional countries.”
He has requested the SBP follow in the footsteps of regional countries that have maintained their key policy rate at an average of 6.5% to attract investment and stimulate the economy.
Reflecting on the current economic conditions, coupled with the new interest rate, former president of the Korangi Association of Trade and Industry (KATI), Salman Aslam said, “It will be very challenging for businesses to stay operational.” Speaking to the Express Tribune, Alpha Capital Senior Equity Analyst Saqib Hussain said, “After taking into account the recent developments and flood assessments, the SBP revised its projections for FY2023.The GDP is now projected at 2% down from the previously projected 3-4%. Average inflation is now being projected in the range of 21-23% for FY2023, higher than previous estimates of 18-20%,” explained Hussain.
The Pakistan Businesses Forum (PBF) Vice President, Jahan Ara Wattoo noted that, “Although the policy rate is high in Pakistan, the business community has to understand that until we can control the rupee dollar parity there is no option.”
“Bank loans taken by the business community have become expensive, but massive depreciation in the last four years has also made our imports expensive – putting a put heavy dent on our Current Account Deficit (CAD), said Wattoo, adding that “On the positive side, this policy rate will attract foreign currency hoarders as a rupee savings account is now desirable.”
The Employers Federation of Pakistan (EFP) President Ismail Suttar urged the SBP to nurture a conducive environment for businesses to thrive.
“The cost of doing business in Pakistan has been rising consistently over the last five years. With such a high policy rate, businesses will be discouraged from borrowing hence slowing down business activities,” warned the EFP president.
“SBP must consider a policy where businesses can boost economic activity. Inflation is currently a global issue created largely by industry supply shocks and constant rate hikes are not the solution. This will decrease economic activity in a country that is already struggling financially,” he urged.
SITE Association of Industries President, Riaz Uddin said, “Normally, a high inflation rate means the economy needs to cool down as it’s expending too swiftly, however, our case is different. With this policy rate, economic activity will decline, as will employment and government revenue.”
Arif Habib Commodities CEO, Ahsan Mehanti said, “Interest rates have been rising globally, and the SBP’s action followed that trend. Businessmen have been demanding an ease in the policy due to political noise and surging energy prices for a long time. Imitated inflation is the cause and rupee stability is its resolution, not raising the interest rate,” he suggested.
Published in The Express Tribune, November 27th, 2022.
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