FPCCI says interest rate hike to curb investment

KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Saturday expressed its concerns over policy rate hike by another 25 basis points and termed it an anti-investment measure, a statement said.

“The SBP (State Bank of Pakistan) continues to tighten monetary policy and increased policy rate by 4.50 percent in the last one year, despite evidences that the policy tightening strangulates investment in Pakistan and hampers economic activities,” FPCCI President Daroo Khan Achakzai said.

Investment-to-GDP ratio in Pakistan was very low, ie, 16.4 percent of GDP, compared with 22.5 percent in 2007, while in India, the investment-to-GDP ratio was 30 percent and in Bangladesh it was 31 percent.

The FPCCI president termed the monetary policy anti-investment, which had declined the economic activities in the first six months of the current fiscal year, evident from declining large scale manufacturing growth, particularly textile industry, food and beverages, petroleum, iron, pharmaceutical, electronics and wood products. Achakzai said 10.25 percent was a very high rate, compared with the regional economies, including India, 6.5 percent; China 4.35 percent; Sri Lanka nine percent; Thailand 1.75 percent; Indonesia 6.5 percent; and Malaysia 3.25 percent.

“Inflation is at six percent, which is high, compared with 3.8 percent last year, but this inflation is cost pushed, which can’t be controlled through demand management policies,” he added. The major cause of rising inflation in the country was high cost of doing business, particularly costly utilities, increase in prices of industrial inputs and shortage of essential items of daily necessity.

“The government should focus on increasing the demand for credit by reducing interest rates and facilitate access to finance. Globally, monetary policy is aimed at protecting the value of the currency in coordination with the fiscal policy to achieve the objectives of macroeconomic stability with constraining inflation and expansion of private sector investment,” he added. He also said the government should create its own fiscal space for financing its expenditures instead of borrowing from the State Bank.

In a separate statement, Lasbela Chamber of Commerce and Industry President Maqsood Ismail also criticised the hike in policy rates and said it would discourage industrial expansion.