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November 27, 2020

FPCCI urges central bank to bring interest rate down to 5 percent

Business

November 27, 2020

KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Thursday urged the central bank to bring the interest rates down to five percent, as inflation was expected to decline.

FPCCI President Mian Anjum Nisar said the State Bank’s decision to keep the discount rate unchanged at seven percent was not understandable, especially when both growth and inflation appeared balanced.

In a statement, he said recent reduction in electricity tariff for SMEs was the first step towards cut in production cost, while the second and vital step toward this direction would be bringing the interest rate down to the regional level for providing a level-playing field to exporters.

“The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandise in the country following FTAs with several countries, including China,” he added.

FPCCI appreciated the central bank for bringing its policy rate down to seven percent from a high of 13.25 percent and for taking several other measures of continuing fiscal, monetary and credit stimulus, but suggested the SBP to slash the rate further to at least five percent. “So that industrial production, which has already been indicating a recovery – an encouraging sign – should continue.”

He said after the coronavirus devastation, Pakistan should take advantage of export orders that were cancelled by other regional countries. For this, the government would have to reduce production cost of the industries.

Nisar said in future inflation would expectedly decline further due to low demand amidst the second wave of coronavirus. On the other hand, the external front was also presently sustainable due to foreign financial support and rescheduling of debt that has supported reduction in current account deficit, he added.

The FPCCI president said that with both demand-driven and import-based inflation in check, there was a need to further slash the interest rates as businesses could not survive on such uncompetitive KIBOR rate.

He further said the central bank should also advise commercial banks to revise KIBOR on a monthly basis instead of quarterly to pass on the benefit of lower rates quickly to the businesses. The impact to banks on their deposits would be insignificant as majority were demand deposits instead of time deposits.

He said SBP should take measures and develop strategy to protect the pace of economic and trade progress of Pakistan; otherwise, the country might again face lower industrial growth and shifting of industrial units to other countries.

He said the SBP has accepted that inflation was due to an increase in food prices and that these supply side pressures were likely to be temporary, with an expectation of decline in average inflation within the range of seven to nine percent.

Moreover, the large scale manufacturing index (LSMI) of food has also increased from negative to positive, growing by almost 13 percent, which should continue with the support of government policies. The MPS has also referred to growth recovery and stated that LSM output was continuing to rebound, expanding by 4.8 percent.