Rate cut hailed

KARACHI: Business community on Saturday hailed 100 basis points cut in the policy interest rate by the State Bank of Pakistan (SBP), terming this an important step to boost investment.
However, they feared that the persistent energy crisis could not let the effects of the decision pass on to the industry.
“This will improve cash flow and encourage investment,” said Iftikhar Ahmed Vohra, president of the Karachi Chamber of Commerce and Industry (KCCI). “Though, we were expecting a reduction of 200 basis points.”
A decrease in the cost of borrowing will pave the way for the falling industrial production cost. Moreover, the credit to the private sector may also pick up momentum.
According to the SBP’s monetary policy document, credit to private sector uptake during July-December 2014 period was lower than the level witnessed during the same period last year.
“This slowdown in credit growth could be attributed to both demand and supply side issues, such as weak corporate profitability of major industries till September 2014, shift in government borrowings away from SBP to commercial banks amid slower deposit growth, challenging security situation, falling commodity prices, and continued energy/gas shortages for the industry,” the document said.
Though the monetary policy decision won a widespread support from business community, some industrialists were not content.
“The economy needs faster and deeper real economic activities,” said Jawed Bilwani, president of SITE Association of Industry.
“Huge government borrowing has been crowding out the private sector, but we hope that the government would keep its expenditures under control in future,” he added.
“But, when the industries are suffering total closure of gas supply, how the industrialists will run their production, pay the workers,” he said. “Resultantly, (they) fail to meet their export commitments…and in this situation, importers will not lift the goods and…we will lose the valuable orders for the next season.”
Bilwani said: “It is a great dilemma and indeed most pathetic that the vital industries of the largest industrial area – SITE remained without gas for 10 days in 22 days of January 2015 and 40 days since October 1, 2014.”
Yakoob H Karim, chairman of Lasbela Chamber of Commerce and Industry said the industry may take some sigh of relief as a result of reduction of one percent in interest rate.
“This will give some breathing space to the dying industry,” he said. “Interest rate is an important input for the industrial sector and always influences the cost of production.”