Wednesday June 29, 2022

Rate hike draws massive fire from businessmen

By Our Correspondent
April 08, 2022

KARACHI: Country’s business fraternity on Thursday came down hard on the latest monetary policy tightening by the central bank, which they said would make borrowing too expensive for them to continue with their operations.

State Bank of Pakistan (SBP) in an emergency meeting of its Monetary Policy Committee on Thursday raised the policy rate by 250 basis points to 12.25 percent

The SBP, in its monetary policy statement, noted that this action would help safeguard the external side and ensure price stability.

It added that the central bank was in the process of taking further actions to reduce pressures on inflation and current account, namely an increase in the interest rate on the export refinance scheme and widening the set of import items subject to cash margin requirements.

Muhammad Idris, President Karachi Chamber of Commerce & Industry termed the rate hike as ‘devastating’ that would adversely impact the industry and export sector and render industrial workers jobless.

He said the resultant massive increase in the cost of industrial production would handicap the country’s export sector.

Idris said the business community opposed the autonomy of SBP because of fears it would make it a pawn of the International Monetary Fund and it had been proven.

This move will only rub more salt into the wounds of the local industry that has been losing its profit margins and competitiveness in overseas markets to high cost of raw materials, energy, and other inputs.

Idris called this move unwise as it came at a time when the economy was deteriorating at an unprecedented rate.

Salman Aslam, President Korangi Association of Trade & Industry, said it would not be possible for the businesses to operate in such a high interest rate environment.

Aslam foresaw huge adverse impacts on the economic growth, which was already fragile, while rupee devaluation and high inflation were hurdles in the way of expansion.

Fahad Rauf, analyst at Ismail Iqbal Securities, said the SBP did not include any forward guidance in this policy statement. “However, this action is likely to be decisive.”

Rauf said the real rates, on a forward looking basis, were positive for the first time in 2 years.

“The SBP is not planning to take any more actions.”

He said inflation was currently on the higher side, but they expected it to stick at current levels in the near term.

Ahmad Ghulam Hussain, CEO APAG, manufacturer of Soya Supreme, termed the policy announcement “a bomb blast” for the industry, saying it would add to more economic crises amid rupee devaluation and political uncertainty.

Nasim Allahwala, chairman at Tibet Snow Group of Companies, said, “the policy announcement has two objectives; arrest inflation and put a stop to the roaring dollar. But, it will negatively impact all businesses, especially those which are import base,” he warned.

“It is quite unfortunate for the business community. We are unable to understand how we will run our businesses with this high policy rate and the dollar at 190,” Fawad Anwar, MD Al Karam Textiles Ltd, said.