Under duress: Interest rate hike takes businessmen by surprise

Karachi Chamber says govt is coming under IMF pressure.

KARACHI: Reacting to an increase of 50 basis points in key interest rate, leading chambers of commerce and industry have expressed surprise and said the rate hike alone will not address the economic woes facing the country.

“We were expecting the central bank to keep interest rate unchanged but it seemed that it took the decision under pressure from the International Monetary Fund,” said Mohammad Haroon Agar, President of Karachi Chamber of Commerce and Industry (KCCI), while talking to The Express Tribune on Friday.

Agar said the interest rate hike and recent increase in electricity tariffs would add to the problems besetting the industries as both the steps were going to push up cost of production in the country.

The State Bank of Pakistan has increased its policy rate to 9.5% from 9% in the first such step since January 2011 – a long gap of about 32 months – when interest rate stood at its peak at 14%.



Analysts believe that the high interest rate may dampen positive sentiments among investors who were enthusiastic after Pakistan received first loan installment of $540 million from the IMF last week.

“We understand the central bank’s position which is tasked with controlling rising inflation in the country,” said Farooq Iftikhar, President of Lahore Chamber of Commerce and Industry (LCCI).

“Economic problems of the country are not going to end by just revising the monetary policy, the government needs to widen the tax net and ease the tax burden off those who are already heavily taxed,” he suggested.

The government should take recent IMF comments seriously in which it said that the economy of Pakistan was in great ‘mess’, Iftikhar said, adding though the government had taken many encouraging steps recently, the business community expected much more from it.

According to industrialists, the revision in interest rate is a second setback in recent weeks after the government sharply raised electricity prices for bulk consumers in August.

Previously analysts had assumed no hike in interest rates due to a letter of intent released by the Ministry of Finance telling the IMF that the state bank will follow a moderate monetary policy initially.

Published in The Express Tribune, September 14^th,  2013.

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