Businessmen suggest SBP to adopt accommodative monetary policy


Mian Anjum says high markup reduces private sector borrowings in IQ
As the bimonthly monetary policy is being announced on Monday the Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Businessmen Panel (BMP) has suggested the Central Bank to adopt an accommodative monetary policy stance, asking the new finance minister to fulfill his commitment of reining in inflation besides cutting interest rate and strengthening the undervalued local currency against dollar.
FPCCI former president and BMP chairman Mian Anjum Nisar said that already unprecedented inflation and high markup rate have drastically reduced private sector borrowings during the first quarter of the current fiscal year. The government estimated the economic growth rate would be in the range of 3 to 3.5pc while international agencies predict it would be as low as 2.3% for FY23 amidst highest key policy rate in the region.
Mian Anjum Nisar warned the central bank of any aggressive jump in the key policy rate in the upcoming monetary policy, as the week market situation is the outcome of the government’s wrong economic policies while the investors were stuck in a selling frenzy over economic fallout from the country’s record trade deficit and the fear of another discount rate hike, he added. Demanding competitive interest rates at regional countries’ level, he said, the SBP’s stance of keeping the monetary policy rate high compared with the markup rate of China, India and Bangladesh is not good for industrial growth. This would be the first monetary policy after the new appointments of the State Bank of Pakistan governor and finance minister has evoked keen interest from the financial sector amid expectations of no change in the interest rate given unprecedented inflationary pressures.
The bimonthly monetary policy will be announced on Monday by SBP chief Jameel Ahmed while Finance Minister Ishaq Dar is believed to have provided his inputs. It is good that the finance minister is willing to bring down both the policy interest rate as well as inflation at the same time. The current SBP policy rate is 15% while the inflation in Sept was over 23% compared to 27% in August, which shows the real interest rate is negative with a wide margin. He said that the expectation of further monetary tightening and an expected all-time high current account deficit had sparked panic among the investors, leading to the crisis like situation in the economy.
The BMP chairman asked the new finance minister to fulfill his commitment of maintaining an accommodative monetary stance in the near- and long-term to support the rare recovery, amid uncertain heavy floods worries and challenges in the country.

He stressed the need for reduction in the discount rate, arguing that low key policy rate is essential to make the Pakistani exports sector, as well as the local industry competitive.

FPCCI former president said that the achievements of high exports and stabilization of the economy require friendly monetary policy measures so that the debt liability of the business sector is compensated through lower markup rate.

The BMP Chairman said that most economic activity data and indicators of consumer and business sentiments are not satisfactory, so the trade and industry need continued support from the government in the form of lower interest rates, amid such external shocks.

He appreciated energy tariff relief for the export sector, also demanding the same relaxation, especially for the Small and Medium Enterprises (SMEs) as a first step towards a cut in the production cost, while the second and vital step towards this direction would be bringing discount rate to the regional level with a view to provide level-playing field to the industry.

The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandise in the country; following FTAs with several countries, he added.

Appreciating the central bank’s role in sustaining economic growth through supporting trade and industry, he said, the reduction in interest rate would be a vital relief to the business community. For this, the government will have to reduce the production cost of the industries to avail this offer by the international buyers.

The FPCCI former president said the central bank should announce an initiative related to loans for the Small and Medium Enterprises (SMEs) particularly in the flood-hit areas, as the sector has to show collateral to banks, which are always reluctant to offer them concessional credit.

The BMP again warns that the trade deficit and further increase in the interest rates will kill the economy. This is the result of taking foreign loans and the continuous rupee depreciation and calling for putting an end to this destruction.

FPCCI ex-president also made it clear that the access to finance should be made affordable to create an enabling environment for the businesses to remain competitive in the regional and international markets.

He said only enhancing the exports and bridging the trade gap had the potential to help stabilize the economy, put a halt to rupee depreciation, create millions of jobs and generate hundreds of billions in taxes.