PBC says rate hike to benefit black economy

KARACHI: Business community on Monday slammed the hike in policy rate by the State Bank of Pakistan (SBP), arguing it would be a bane for the growth of documented economy and a boon for the black economy.

Pakistan Business Council in a post on social media website Twitter said: “When general fuel subsidy fails to curb imports, State Bank of Pakistan jacks up policy rate by 150 bps even though it is not a solution to global commodity led inflation. Who suffers? Government, formal sector borrowers and its customers. Who benefits? Smugglers?”

It further said “the fiscal policy must align with monetary policy to manage the external and fiscal accounts”. Muhammad Idris, President Karachi Chamber of Commerce and Industry (KCCI), taking a strong exception to the hike said it would deal a big blow to the already fragile national economy, struggling to recover from external and internal shocks. “It is 'unwise’ on part of SBP in the present economic conditions,” Idris said. “The increase in policy rate and not reviewing the already high interest rate is beyond comprehension.”

Idris noted that it would flare up the inflation and add to the already high cost of production and ultimately pressure the country's exports. “Business community is suffering immensely and should not be subjected to more problems by steps like interest rate hike,” KCCI chief said.

He appealed to Finance Minister Miftah Ismail to intervene and bring it down. “Higher inflation and cost of production will devastate the frail national economy,” Idris said. Korangi Association of Trade & Industry (MATI) also showed concern over the increment in the policy rate.

“The increase in interest rate will only make cost of doing business higher and uncontrollable,” said Syed Farrukh Ali Qandhari, Vice President KATI. “We are experiencing the highest interest rate in the region and this further increment of 1 percent will increase inflation and price of goods in the local market too.

“Businesses are condemning this act and demanding the policy rate to be lower,” he said, urging the government and SBP to involve all stakeholders before taking such important decisions.

Analyst Khurram Schehzad at Alpha Beta Core said interest rate touched historic highs, thus cost of doing was peaking. “It is a choice between growth and stability. Unless we embark on a comprehensive reforms programe, all or majority of political parties agree on a common agenda i.e., the charter of democracy, and work towards achieving a common goal, we will continue to return to such vulnerabilities,” Schehzad said.

Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, said the SBP raised the interest rates assuming fiscal consolidation would also take place to bring macroeconomic stability in Pakistan, to reduce inflationary pressure and bring external stability.

“Once these measures are undertaken effectively and coordinated, the economic growth might slow down for some time, however, we can see inflation coming down from November 2022 and lower rates from March 2023.” However, he said that once the relief package (petroleum and electricity subsidies) was withdrawn, inflation would go up.