Business community shows disappointment on policy rate


KARACHI: All industrial and export oriented sectors of the country has showed displeasure over no-downward change in the policy rate by State Bank of Pakistan (SBP) on Saturday. The SBP has decided to keep the policy rate unchanged at 10 percent.
It would spell difficulty for the grappling economy and damage the shabby investment climate while it would only benefit the lenders.
Representatives of Karachi Chamber of Commerce and Industry, Islamabad Chamber of Commerce and Industry, Rawalpindi Chamber of Commerce and Industry, Hyderabad Chamber of Commerce and Industry, Lahore Chamber of Commerce and Industry, Sialkot Chamber of Commerce and Industry besides SITE Association of Industry, Korangi Association of Trade and Industry, New Karachi Trade and Industry, Federal B Area Trade and Industry, All Pakistan Textile Mills Association, Pakistan Tanners Association (PTA), Pakistan Cotton Ginners Association (PCGA), Surgical Instruments Manufacturing Association Pakistan (SIMAP), All Pakistan Marble Mining Processing Industry and Exporters Association (APMMPIEA), Federation of Pakistan Chambers of Commerce and Industry  and other industrial and importers trade organisations opined keeping the policy rate at 10 percent would create liquidity problem to the whole industry, which was already braving losses on high cost of energy and other crisis in the country.
Such an anti businessmen policy would keep the cost of production higher besides we have comparatively low productivity comparing with India, Bangladesh and Sri Lanka.
The mechanism to control inflation through this measure would not work as government the major borrower of the banks borrowed huge money, said Pakistan Tanners Association Chairman Agha Saiddain.
Availability of surplus liquidity in the market is always essential as its absence is the prime reason behind lack of investment in the industry, he added.
Reduction in bank mark-up rate could encourage fresh investment in the industry particularly in the textile and leather industry and increase jobs and exports of the country.
A member of FPCCI said private sector borrowing remains still very low as banks prefer lending to the government and a hike in the key policy rate would amount to punish the masses, as well as the private sector as they would have to pay more interest on borrowings.
The SBP’s no change policy would keep up the cost of living, the cost of doing business and rate of defaults and unemployment to increase. Private companies will find it tough to discharge obligations and raise fresh funds, he added.
In past higher rate has not helped government to reduce imports of oil, food, raw material and essentials while it has reduced growth and savings, triggered unemployment and made imports costly.
Moreover it has hit investors’ confidence and eroded the ability of the government and private sector to spend on development, which has stalled national progress.
Ten percent policy rate is negative for stock valuations and earnings of leveraged companies and for the overall economic revival that was expected after the induction of business PML-N government.
Pakistan Yarn Merchants Association member Ghulam Rabbani said the population was multiplying fast, which means high rate of unemployment in the absence of expansion plans of industry due to high interest rate.
He said reduction in bank mark up to 7 percent could encourage fresh investment in the industry particularly in textile industry and increase jobs and exports of the country.
The current decision shows SBP was least interested in the growth of industrial sector rather it kept helping heavy borrowing of the government.
The step will not help to keep control the inflation to average 10 percent in last fiscal year 2013-14.
The textile, leather and other billions of dollars exporting sectors of the country have great potential to attract foreign investment.
KCCI expressed deep concern. The different segments of the society were already facing hike in power tariffs of 56 percent for industrial, 33 percent for commercial and 15 percent for residential consumers.
The industrial and trading activities would be hit hard and this decision would keep the cost of doing business high.
APMMPIEA Chairman Sanaullah Khan said the 10 percent policy rate would definitely hurt the developing export-oriented industrial sectors including marble, surgical and sports, as they were in need of funds on reasonable rates.
Stagnant policy rate at 10 percent would definitely hurt the industrial sector, as it would face difficulty in returning the banks’ loan, which would increase the ratio of non-performing loans (NPLs).
The consistently low level of credit available to the private sector together with declining foreign investments remained the main factors responsible for a stagnant economy.
SBP should continue to monitor developments in the fiscal sector and those pertaining to foreign financial inflows to gauge risks for macroeconomic stability. It would have been better if the rate could be brought down to around 7-8 percent, which was the need of the day.
The private sector was losing capability of production due to high financial cost and less liquidity, he added.
The Consumer Price Index (CPI) inflation has increased during third half of fiscal year 2013-14.
Financial experts said SBP linked the minimum rate of return on average balances held in savings deposits with the floor of the interest rate corridor. This policy intervention ensures deposit rates respond more strongly to policy rate changes.
The SBP expects the government will keep these borrowings in check in the last months of FY14 and lower outstanding stock gradually as stipulated in the new IMF programme.
A risk to the fiscal position is a possible shortfall in tax revenues, recurrence of energy sector circular debt, and delays in budgeted foreign inflows. Such deviations could lead to increase in borrowings from the banking system, further accumulation of domestic debt and higher inflation.

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