Economists call out hidden cost of lower interest rates

Further reducing the interest rate from the 12% maintained by the central bank may take a heavy toll on the silver economy and its stakeholders, such as pensioners, life insurance policyholders, adults, widows, and others, while shrinking their savings and policy profits and widening gaps between the haves and the have-nots. Moreover, the continuous avarice of the elitist economy would make the lives of common people miserable, economic strategists said.

Talking to The Express Tribune on Thursday, they said that evidently, the domestic banking industry of the country remained a "money-minting" machine while investing in the Treasury-Bills (T-Bills) of the State Bank of Pakistan (SBP) during the era of tight monetary policy, maintaining very high interest rates of up to 22%.

They said that now, as the journey from a tight to a soft monetary policy begins, interest rates have dropped to 12%, which has had negative impacts on the silver economy and its stakeholders, mainly pensioners, life insurance policyholders, adults, widows, and weaker segments of society. The drastic reductions in their savings and policy profits are marginalising them further, leading to social alienation, structured discrimination, and, above all, an even wider gap between the haves and the have-nots. They urged the government and the central bank to devise a collaborative and consultative protective interest rate mechanism for these segments of society. This could be achieved by combining concepts from the US's usury laws, the European Central Bank's anti-negative interest rate system, India's social priority system, and the Scandinavian model of special interest rates through a logical upper capping system. They stressed that scapegoating these vulnerable groups for the benefit of businessmen would not yield economic dividends.

Ironically, they said, despite all policy incentives, government support schemes, and preferred loan mechanisms, the attitude of businessmen and investors remains unsatisfactory, with constant demands for further reductions in interest rates to single digits.

They urgently called for grand financial consultations and a business consensus among all stakeholders, stressing that further lowering interest rates would not benefit other segments of society. Instead, a balanced and protective interest rate policy should be the way forward, ensuring economic decency and financial equality. They suggested that policymakers could consider offering tax incentives to businesses alongside preferential energy rates.

They underscored that democratising wealth distribution, resources, and productive channels must be the guiding principle. Otherwise, the perpetual greed of an elitist economy will continue to harm the lives of common people.

"We need an inclusive, open, transparent, accommodative, and balanced financial system that extends equal treatment to all," said economic strategist and regional expert Dr Mehmoodul Hassan Khan. He noted that both falling and protective interest rates have their own economic justifications, scope, utility, and strategic importance.

"In an economy like ours, where most industries and corporate sectors remain the prime beneficiaries of banking loans, the financial system, and tax rebates, a bvalanced interest rate system should be pursued and implemented across all sectors and segments of the economy," he said.

He pointed out the bitter reality that both industries and corporations have engaged in massive plundering, scams, embezzlements, and capital drains, directly and indirectly harming the economic prospects of common people—especially pensioners, adults, life insurance seekers, widows, and orphans.

"Obviously, low interest rates are not the only essential factor for the revival of industrialisation in the country. There must be radical improvements in the 'Ease of Doing Business Index,' the supply of qualitative human capital, and drastic structural changes in corporate culture through strict loaning, audits, and financial controls," he said.

"Unfortunately, our businessmen have become trading merchants, importing finished products from China instead of focusing on self-production. Many prefer to invest in Bangladesh, Vietnam, Baku, and Uzbekistan or divert their loan portfolios toward real estate and housing schemes."