LAHORE: The business community has outright rejected 100bps increase in the benchmark policy rate by the State Bank of Pakistan (SBP) and termed it an anti-business move.
They have questioned the government’s approach towards controlling inflation by jacking up lending rates, saying on the one hand the strategy has previously failed to produce desired results and on the other it decelerated economic activities in the country.
In his reaction to the yesterday’s announcement, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) president Irfan Iqbal Sheikh categorically apprised the government that the entire business, industry and trade community of Pakistan had refused to accept a key policy rate of 21 percent; after today’s further rise of 100 basis points.
No commercial bank will now lend to private-sector for anything less than 23.5 to 24 percent, he added.
Sheikh questioned the efficacy of country’s monetary policy and noted that interest rate has been increased by a whopping 11.25 percent in a quick succession of last 14 months without attaining any intended headway in the curtailment of inflation; and, if that is not the governance & regulatory failure, then what will be the failure look like to move the government for a course correction?
He highlighted that Asian Development Bank (ADB) has projected Pakistan’s economic growth in FY23 at only 0.6 percent in its latest release pertaining to country’s state of economy on 4th April 2023; and, this bleak economic outlook is the direct outcome of the contractionary, regressive, IMF-dictated and recessionary monetary policy; which has dried out the access to finance for businesses.
The FPCCI chief also stressed that the exports are heading north as it has posted a negative growth in export numbers for the seventh month in a row by posting 14.76 percent YoY decline in March 2023.
He added that FPCCI is worried that the two major industries where the government should have had its focus vis-à-vis growth in export earnings are in systematic decline, i.e., textiles have declined by 11 percent, IT & ITeS by 3 percent – and, the yearly decline in textiles alone can be up to $3 billion or upwards of 15 percent.
Sindh Industrial Trading Estate (SITE) Association president Riaz Uddin said the hike in the interest rate would further increase the cost of doing business which is already hit by rupee devaluation against the dollar, rising gas and power bills, dollar crisis, shutdowns of various industries due to raw material shortage, etc.
Pakistan Business Council chief executive Ehsan Malik said the latest hike in the policy rate, much like other recent rises, would do nothing to control cost-push and devaluation-led inflation.
“Nor in this politically turbulent time will it buffer the value of the rupee,” he added. On the other hand, he said it would raise the cost of borrowing for the formal sector already suffering from low capacity utilisation due to an import crunch. “It is time that the State Bank of Pakistan (SBP) adopts a more differentiated stance on the use of monetary policy,” Ehsan said.
