Business community seeks regionally competitive interest rate

The Nation  |  Aug 01, 2021

LAHORE - Demanding competitive interest rate at neighboring countries’ level, the business community has opposed the central bank’s decision of keeping key policy rate unchanged at 7% for the sixth time in row, despite declining inflation and positive economic growth.

Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel chairman Mian Anjum Nisar observed that keeping key policy rate at 7% doesn’t seem to be logical despite the fact that inflation has dropped to 8.9% amidst reduction in headline inflation and core inflation, which are expected to go down further. He said the results of the cut in policy rate from 13.5% to 7% percent are very positive in the form of 3.94pc economic growth. He asked the SBP governor to fulfill his commitment of maintaining accommodative monetary stance in the near and long-term to support the rare recovery amid uncertain Covid-19 challenges.

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The BMP chairman and FPCCI’s former president said that future anticipated inflation would further decline due to low demand amidst the fourth wave of coronavirus. On the other hand, the external front is also presently sustainable due to foreign financial support and rescheduling of debt, he added. He said that t he central bank should announce an initiative related to loans for small and medium enterprises (SMEs), as the SME sector has to show collateral to banks, which are always reluctant to offer them concessional credit.

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He termed the 7% key policy rate as insufficient, especially in the extraordinary prospects amidst fear of worldwide trade and industrial lockdowns in fourth wave of pandemic. He suggested to promote the present growth pace further growth in the industrial and service sectors through lowering of mark-up rate, as the economy is on track, with declining inflation and stability on external and domestic fronts. 

The FPCCI former president said that achievements in exports and stabilization of the economy through the monetary policy measures now require to sustain again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through lower mark-up rate. Mian Anjum Nisar said that the State Bank’s keeping the discount rate unchanged at 7% is not understandable when it also expresses satisfaction over declining inflation and rising the growth, saying the risks to the outlook for both growth and inflation appeared balanced.

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The trade and industry need continued support from the government in the form of lower interest rate amidst such external shocks, he suggested. He said that the manufacturing recovery is also becoming more broad-based, with 12 out of 15 sub-sectors registering positive growth and employment beginning to recover. Mian Anjum Nisar said that the reduction in electricity tariff for SMEs would be the first step towards cut in production cost while the second and vital step toward this direction would be bringing discount rate to the regional level with a view to provide level-playing field especially to the export industry. 

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The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandize in the country following FTAs with several countries, he added. 

While appreciating the central bank’s role in sustaining economic growth through supporting trade and industry, he said that reduction in interest rate would be vital relief to the business community.

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