KARACHI: Employers’ Federation of Pakistan (EFP) on Saturday raised concerns on a surprise increase of 100 basis points in the key policy rate by the State Bank of Pakistan (SBP), saying the hike would slow down business activities in the country.
The central bank has raised the policy rate by 100 basis points to 16 percent, highest since 1999.
“The cost of doing business in Pakistan has been rising consistently over the last five years. With such a high policy rate, businesses will be discouraged from borrowing and hence business activity may slow down,” EFP president Ismail Suttar said in a statement.
He was of the view that inflation is currently a global issue created largely by industry supply shocks. However, constant rate hikes is not a valuable solution as it decreases economic activity in a country that is already struggling financially, according to Suttar.
“The policy rate hike has led to the highest cost of borrowing in over six years. This will negatively affect economic activity in the country as businesses will find it harder to meet financing needs.”
He urged the SBP to consider a policy where businesses were not discouraged to borrow money and could help boost the economy.
Suttar demanded the government ensure conducive business environment, especially at a time when businesses are recovering from the effects of Covid-19. “Raising policy rates will only create harsher conditions for businesses to operate,” he said, adding that the decision would have a turning effect on the country’s exports, as exporters would struggle to meet their financing needs.
“As a result, this policy rate hike will negatively affect economic activity and thus result in unemployment in the country,” he warned.
EFP president urged the central bank to ensure ease of doing business in the country by devising policies that could support boost economic progress.