The business community on Tuesday questioned the government’s strategy of fighting inflation by jacking up lending rates, saying the move has failed to produce the desired results but has slowed down economic activity while criticizing another 100 basis point increase in the benchmark interest rate to a record 21%.
Irfan Iqbal Sheikh, president of the Federation of Pakistan Chambers of Commerce and Industry, declared that “the whole business community has refused to accept the 100 basis points raise in the policy rate to an all-time high of 21 percent.”
He claimed in a statement that despite a massive 1125bps increase in the benchmark interest rate over the previous 14 months, inflation was still unabated. “If that is not the governance and regulatory failure, then what would the failure look like to move the government for a course correction? he asked.
The regressive, IMF-mandated, and recessionary monetary policy, which has restricted access to capital for enterprises, is the direct cause of the World Bank and Asian Development Bank’s reduction of their growth predictions for FY23 to 0.4-0.6%, bemoaned the FPCCI chief. The country’s exports have experienced negative growth for seven consecutive months, and the two key industries of textile and information technology continue to experience declines.
He said that the 21 percent interest rate is far higher than the 2.75 percent, 6.5 percent, and 6 percent interest rates currently in China, India, and Bangladesh. However, he highlighted that Pakistan’s inflation appears to have deep roots and is primarily caused by a significant fall in the value of the rupee, an unheard-of increase in the price of commodities internationally, repeated increases in energy prices, and other IMF-mandated measures.
The SBP policy rate was increased from 9.75bps in February 2022 to 21pc in the current month, but inflation remained stubbornly high. According to the FPCCI president, a further rise is a sign that the monetary policy has completely failed.
Ehsan Malik, chief executive officer of the Pakistan Business Council, claimed that the most recent increase in the policy rate, like other recent increases, would have no impact on the cost-push and devaluation-driven inflation. “Nor will it buffer the value of the rupee in this politically tumultuous period,” he continued. On the other hand, he said that it would increase borrowing costs for the formal sector, which is already experiencing low capacity utilization as a result of a shortage of imports. Ehsan declared, “The State Bank of Pakistan (SBP) needs to take a more nuanced position regarding the application of monetary policy.
SITE Association of Industry 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.