LAHORE -  The business community has welcomed the decision of central bank to keep policy rate unchanged at 5.75 percent, saying the lower discount rate would boost economic activities.

“The low markup rate is the reflection of improvement in economic indicators as reflected in low inflation and considerably improved external account,” said Zubair Tufail, former vice president of FPCCI. Zubair Tufail, who is nominated for presidential candidate by the UBG for FPCCI election 2016, said the State Bank of Pakistan decision is highly commendable as it will help stimulate private sector growth and improve overall economic indicators of the country.

He said that SBP governor deserves appreciation for keeping the interest rate at 5.75 percent. He, however, called for measures to make interest rate cut meaningful and result-oriented, as if the other economic factor were not considered these would continue to create problems for the economy in general and for private sector in particular.

UBG Chairman and FPCCI former president Iftikhar Malik also welcomed the move to keep the interest rate unchanged saying that it could also help the government which is the single largest borrower. He said that it is better that the central bank kept interest rates unchanged, because a rate cut now would shift traders mind-set that interest rates have bottomed out. This could potentially put a surge on interest rates in secondary market bond trading and hurt government borrowing targets. Iftikhar Malik said that the government is the biggest borrower and from that perspective some quarters would be very keen to see lower interest rates. Pakistan’s interest rate is lowest in the region and it has still failed to stimulate growth.

He said that banks have been investing heavily in government papers while the government has also borrowed around Rs850 billion from the central bank since the beginning of the fiscal year. The government has been retiring long-term Pakistan Investment Bonds (PIBs), which benefited the government due to the low interest rate. Quoting the figures, he said that the low interest rate significantly reduced the government’s debt servicing which has spent 41 percent of its tax revenues on interest payments in 2015-16. According to banking officials, the interest rate during the current fiscal year has remained as low as 5.75pc, which benefited the government while almost all banks reported lower profits. PIAF chairman Irfan Iqbal Sheikh said the provision of ample cheaper liquidity is a must to create new businesses, as in the last five years the higher interests kept the private sector growth at the lowest ebb causing huge damage to the businesses and unemployment graph also witnessed an unusual surge.

Irfan Iqbal said, “It was longstanding demand of the business community that markup rate should be at the lowest to provide some breathing space to industrial and trade sector.” He also called for further reduction in the mark-up rate to give required boost to economic activities in the country, which had just taken off therefore the State Bank of Pakistan should ensure maximum relief to the businessmen.

PML-N Traders Wing general secretary Shahid Nazir said that easy access to financing is a prerequisite to strengthen investment scenario and to reap the benefits of GSP Plus status, so the government should focus in this area to achieve desired economic gains. It is also necessary to promote regional trade.

He observed that State Bank is doing right moves by bringing down the interest rate however a lot has yet to be done in this direction to give a breathing space to the industrial sector.