PESHAWAR /LAHORE - The business community here on Thursday objected the decision of State Bank of Pakistan (SBP) to raise the key interest rate by 125 basis points, taking it to 15%, which would be detrimental for industrial growth, economic and trade activities.

Sarhad Chamber of Commerce and Industry president Hasnain Khurshid Ahmad while chairing a meeting of industrialists and traders here at the chamber’s house, said the business community ‘rejects’ this increase in interest rate.

The meeting was attended by chamber’s senior vice president Imran Khan Mohmand, vice president Javed Akhtar, industrialists, traders and exporters in a large number. Hasnain said: “The historic hike in policy rate will increase the cost of doing business.” He added the decision wasn’t in the best interest of economy, industries and businesses and should be revised immediately.

“Trade, industrial and commercial activities have already slowed down as result of several waves of Covid-19 while announcement of hike in policy rate by SBP under prevalent circumstances is completely incomprehensible,” the SCCI chief told the meeting. He urged the Prime Minister Shehbaz Sharif and Finance Minister Miftah Ismail to take notice of this whopping increase in interest rate by the central bank. The SCCI’s president recalled that SBP had previously made a hike by 2.5 per cent, jacking up the interest rate at 13.75 per cent and again raising it by 125 basis points, taking it to 15 per cent, which would hurt investment and increase the cost of businesses. He continued to say that the hike would bring a new wave of inflation in the country, and would also negatively impact the country’s exports. He requested the acting Governor SBP, Dr. Murtaza Syed to take back the decision of increase in interest rate in order unhurt trade and commercial activities in the country.

Meanwhile, the Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP), demanding for growth-oriented monetary policy, stated that the current policy rate of 15 percent is the highest in view of the regional countries markup rates and industry cannot survive at the existing 14-year high record discount rate. FPCCI former president and BMP chairman Mian Anjum Nisar demanded the immediate reduction in electricity tariff especially for SMEs as a 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. 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 The trade and industry need continued support from the government in the form of lower interest rate amidst such external shocks, he suggested.

Growth-oriented monetary policy vital as industry cannot survive at 15pc record discount rate

The BMP chairman expressed serious concern over the highest policy rate in the region and in this situation industry cannot survive and to compete in the international market is absolutely impossible. Mian Anjum Nisar 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. He stressed the need for reduction in discount rate, arguing that low key policy rate is essential to make Pakistani exporting sector as well as the local industry competitive. He said that the 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.

He expressed dismay that on a month-on-month basis, CAD has increased by 131 percent, from $618 million in April 2022 to $1.425 billion in May 2022. The only way forward is to increase exports substantially and post a double-digit growth in exports each year, he added.

He said that what the country needs is enhanced industrial production; rapid increase in exports; private sector and foreign direct investment (FDI) and the resultant employment generation; increased tax collection and a healthy economic growth rate. He maintained that the current phenomenon of stagflation in the country is not demand-pull based and will not be solved by irrationally increasing the interest rate to an excruciatingly high level, where borrowing from the formal sector becomes unviable.

He was of the opinion that uncertainty in political and economic environment, ever-so-volatile rupee-dollar parity, and incessant interest rate hikes will hurt all the sectors across the board, as cost of doing business, ease of doing business index, access to business financing, and access to foreign exchange for imports will be adversely affected and running companies in profit will become next to impossible.

He termed the 15% key policy rate as very high, especially in the extraordinary prospects, suggesting to promote the present growth pace further in the industrial and service sectors through lowering of mark-up rate, as the economy is on track, with stability on external and domestic fronts. He said that the banking sector should also take measures to strengthen SMEs to stimulate the growth of trade and industry in the country as SMEs are considered the engine of economic growth. He said that usually banking industry in Pakistan was dependent on the strength and performance of the economy in which SME sector has attained an important role in terms of its growth potential and greater employment opportunities. He cited the example of Taiwan, Korea, Brazil, China and Turkey, who have been concentrating their efforts in developing the SME sector. He further said that SBP should initiate special schemes and come up with growth oriented policies to support the trade and industry.