Interest rate hike to hit industry, economy: trade bodies

KARACHI: The business community Thursday severely criticised the policy rate hike by the central bank by 125 basis points, which they said would be a serious blow to the industry and impact national economic development negatively.

Industry and trade representatives said the industrial sector was already facing many challenges, like high cost of energy, shortage of gas, rupee devaluation and the interest rate hike would be so devastating that it would not be possible for it to sustain. They also believed the interest rate hike would push industries to close down their operation as the industry operates at a 20 to 25 margin and now the lending cost would alone be 20pc when the interest rate of banks was added to the policy rate.

"We condemn the decision of central bank to raise the policy rate to 15pc,” said Irfan Iqbal Sheikh, President Federation of the Pakistan Chambers of Commerce and industry (FPCCI). Talking to The News, Sheikh questioned as how the industry, especially the export-oriented sector, would be competitive at 15 percent interest rate when it was four percent in India and five percent in Bangladesh.

Salman Aslam, President of the Korangi Association of Trade & Industry (KATI), said the industry operated at a 20 to 25 percent margin and if the lending cost of banks would be 20pc after including their margin in policy rate, how it would be possible for industries to operate in tough conditions.

The Pakistan Businesses Forum (PBF) also rejected the State Bank of Pakistan’s (SBP) decision of increasing the interest rate once again in its policy rate by 125 bps to 15 percent, the highest ever in the recent history of the country.

PBF Senior Vice President Muhammad Riaz Khattak said the business community was expecting a reduction in interest rate as it was a consensus recommendation by it that monetary policy should be eased to control adverse effects of recession.

Khattak said the SBP should cut policy rates to spur growth, as a cut would infuse confidence in the business community and propel the economy which was held hostage to the past policy of austerity. He also complained that lending to the private sector by commercial banks during the current fiscal year had not picked up pace, adding that the decision would neither help curtail fiscal deficit nor control inflation as it had not served the purpose in the past, rather it would create trouble for investors.