KARACHI - Governor State Bank of Pakistan on Tuesday announced the much-awaited monetary policy for first half of FY09, which brought some relief on the tense faces of the businessman who however at the same time were skeptical about the new policy, which they felt, would be disastrous in the longer term. In her speech, while delivering the policy, the SBP chief announced an additional 100bps in discount rate, which was lower than the expectations of the business community, who were expecting a bigger discount rate and could have been disaster in immediate short term. In the first reaction to the announcement, they said that in the shorter term the policy would have less negative impact. However, in the longer term it could have overall deep negative impact. Analysts commenting on the new policy said, increase of 100bps in discount rate will work as a slow poison for the industrial sector and equity markets as well. They said its impact will not be negative in short run while in medium and long terms it will be a disaster for the industrial and other cash rich companies in the wake of fiscal imbalances and burgeoning political uncertainty in the country. They also talked about the positives of the policy, the brightest aspect of the policy was not increasing CRR and SLR rates and keeping the discount rate within the acceptable lower limits rather than the higher slot. The market was shuddering with the thought that the discount rate might be raise to between 150-200 bps but by keeping it at 100bps the market will soak up shock and act positively, analysts added. The fear of a bigger discount rate had already had its impact on the stock markets, resulted KSE-100 index fell by 583 points in two days. Actual impact of the rate hike on corporate profitability depends on six month KIBOR rates. As the SBP has not tighten beyond 100bps; as a result, it would imply a neutral impact on corporate earnings. This should provide some impetus to the share markets. They said State Bank had no option but to increase the discount rate. The government had already in a tight corner because of number of negative financial factors such as unprecedented oil prices, inflationary pressures, absence of any privatization or international issuance flows because of which the current account deficit is growing. Analysts said that decisions taken by SBP in its monetary policy will have positive impact on banking sector, while it will hit cement and textile sector. "100bps increase will have little impact of inflation given that both a depreciating currency and steady pass-through of oil subsidies will keep inflation well in the twenties for much of the fiscal," analysts said. Analysts said that unfortunately, the government has been unable to cut back on borrowing trends from the SBP over the first 100 days of its tenure. It will become harder for the government to justify continued borrowing given that retail petroleum prices have already been raised by over 60 per cent -70 per cent on average since March 2008. In the light of this situation, Government's plan to retire Rs21 billion in each quarter of FY09 will reduce the adverse impact of continued borrowing by the government from SBP on inflation.