KARACHI: A key industry body on Wednesday said the central bank's move to keep interest rate unchanged at 7 percent disappointed businesses that believed lower rate would help boost economy in pandemic and lockdowns.
Mian Nasser Hyatt Maggo, president Federation of Pakistan Chambers of Commerce and Industry said the recently announced monetary policy "is the continuation of the contractionary monetary policies adopted by the State Bank of Pakistan since over a year".
"Keeping the interest rate at 7 percent unchanged is not appropriate at this time when the government is taking strict measures of lockdown and limiting economic activities of all segments of the economy," Maggo said in a statement.
He said that the present statement of continuation of 7percent interest rate negates the central bank's claims that it is supporting the economy through monetary policy.
The governor (SBP)himself admits that the rate of inflation is over the policy rates kept by SBP reasoning for keeping unchanged policy rates," Maggo said.
"While forgetting that the global strategy is focused on mitigating the adverse impact on economic activities for which the policy and mark-up rates have been considered as the healing element."
Maggo further said that the SBP kept the interest rate at 7 percent, which has not been changed from the past over one year.
Earlier, due to the lockdown imposed to contain the spread of Covid-19 in the country, the SBP has aggressively slashed the benchmark interest rate by 625 basis points from March to June 2020 to 7 percent.
FPCCI president said gains in exports and stabilization of the economy through the monetary policy measures need to sustain again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through reduced policy and mark-up rates.
"Since Pakistan is again facing 4th wave of pandemic and moving towards strict measures that will ultimately disturb the smooth function of the business, therefore, the SBP has enough profound reasons to follow footsteps of central banks of the other economies and lower the interest and mark-up rates along with reduction in banking spreads as the banks are enjoying profit making even in the worst spikes of pandemic."
He said the economy is on track as a recent economic survey 2020-21 satisfies growth in GDP above expected target, declining inflation, stability on external and domestic sectors also suggest to promote existing pace and further growth in the commercial, industrial and service sectors through lowering of interest and mark-up rates.
Maggo said there are two choices available; fiscal and MPS measures that determine the level of support for economic growth, while the fiscal policy with the increased targets of indirect taxation and direct taxation with targeted growth of taxation together remained unpromising for private sector growth.
"On the other hand, the MPS is also not following the economic doctrine to reduce the interest and mark-up rates as attempts to provide compensation."
The FPCCI president said the SBP appears to be totally inward oriented research based institution instead of learning from global practices wherein all the economists, laureates, eminent and expertise on the subject may not buy the exclusive stance of the governor SBP that even in 4th wave of Covid his theoretical correlation of inflation with policy rate should preferred over the stabilization and economic growth.
"Under the prevailing business devastating conditions on account of pandemic, lockdown and increasing cost of electricity, gas, transportation and all other inputs for conducting economic activities the SBP need to play its national role by reversing its earlier questionable role by which it took long to reduce the policy rates from 13.25 to 7 percent," he added.
"The same reflection is given by governor SBP that gradual reduction in policy and mark-up rates will be the approach of SBP."
He said that before it is too late SBP should help the present government to politically stabilize itself through economic growth amid external and internal crises like situation, to which nobody disagrees.
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