LAHORE - The trade bodies and industrial associations on Thursday, criticizing the State Bank’s move to increase the discount rate by 50 basis points, called for regionally competitive interest rates and urged the central bank to bring its key policy rate down to single digit.
According to experts, this is second increase in 2 months. Last time 50bps was increased in Sep 2013 from 9%. This reversal occurred after rates fell by 500bps in almost 2 years from as high as 14% in Jun 2011. Experts said that the decision is expected to create a short-term rally in stock and bond markets which were fearing that SBP may increase rates by 100bps in one go. The pressure on Pak rupee will continue considering forex reserves are declining at a faster pace. Industry stakeholders were of the view that SBP has made a U-turn by raising the discount rate to 10% from 9.5% in the Wednesday’s monetary policy statement.
“This will hinder the investment in industrial sector once again and result in expanding defaulters’ list.” APBF chairman Nabeel Hashmi said there was no level-playing field in the region in terms of interest rate and energy tariff. Pakistan is far ahead of the regional competitors so far as the interest rate bench mark was concerned, charging now 10% against 7.25% in India, 6% in China and 7.75% in Bangladesh, he observed. He said that the interest rate should not be higher than 8 per cent for the sake of expansion in investment activities and for creating jobs for the millions of young people entering the job market every year. He said that availability of cheaper money is absolutely necessary for bringing down the cost of production as it is like any other industrial input. If its price is raised, the cost of production also goes up.
TUV Austria head of Pakistan and APBF central president Rashid Mehr said that Pakistani goods had already lost their due place in the global market for being uncompetitive. He said that high interest rate also keeps the manufacturers from investing money in capacity expansion, in technological up-gradation and product diversification.
He said that neither any industrial expansion took place nor any investor put money in any new business venture. And one of the reasons was expensive credit cost to the private sector, keeping the industrialists on sidelines.
LCCI Senior Vice President Mian Tariq Misbah said that the availability of liquidity to the business community is need of the hour as the SBP tight monetary policy in the name of financial discipline had already caused irreparable dent to the private sector growth and brought in an unusual surge in unemployment.
APBF office-bearers including Yaqub Tahir Izhar, Imtiaz Rastgar and Munir Bana also rejected monetary policy and said that mark up at 10% would add more to the Non Performing Loans (NPLs) and unemployment in the private sector. They said the industry was expecting a reduction in interest rate to single digit, as the industry was accruing heavy losses on present levels amidst unprecedented energy crisis in the country. They also criticized the SBP approach on curbing inflation through high mark up, as major borrower of the banks was the government and not the private sector.