KARACHI: The business community, taken aback on Friday by the State Bank of Pakistan (SBP) decision to raise the policy rate by 100bps, rejected the verdict claiming it would devastate the trade and business sectors.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) along with other trade and commerce bodies and associations, categorically rejected the SBP’s decision that raised the interest rate 16 percent.
They said that it was tantamount to destroying the industry by raising the cost of doing business in the country.
On Friday, central bank’s monetary policy committee (MPC) decided to raise the policy rate by 100 basis points to 16 percent to tackle inflation. The MPC said that inflationary pressures have proven to be stronger and more persistent than expected. “It is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” SBP noted. Talking to The News, FPCCI President Irfan Iqbal Sheikh said, “We were not expecting the policy rate hike. In fact, we wanted the policy rate to be reduced to facilitate trade and business in the country for cutting down its cost of doing business.”
Sheikh sounded dejected on the decision of the central bank and asked how trade and industry could function and flourish in “high interest rate scenario”. He said that it was not just 16 percent for trade and industry; when 2.50 percent of commercial banks would be added, the actual interest rate would go up to 18.50 pc. “How can business be feasible with such high interest rate,” he asked.
Commenting on the reasons given by the central bank to raise the interest rate, Sheikh said that inflation has risen throughout the world; there were other methods to control it rather than raising the policy rate.
He believed that policy rate hike would, in fact add to inflation as when the cost of doing businesses would be high because of increased borrowing cost, it would translate into more expensive goods for the end consumers.
Sheikh said that the latest decision of the SBP would further add to the economic woes of the country, which has been struggling on various fronts to stabilise the economy.
Asif Inam, Chairman All Pakistan Textile Mills Association (APTMA) Chairman Asif Inam also expressed his dismay over the interest rate hike and said that it was unexpected.
He said that policy rate hike would dent the growth by raising the cost of doing business for trade and industry. He rejected the justification given by the central bank to raise the policy rate. He called it a “pretext of controlling inflation”. He questioned the rationale of using inflation as a policy tool to control inflation.