ISLAMABAD
The All Pakistan Business Forum (APBF) has called for a significant cut in the monetary policy rate to attain the high position in Ease of Doing Business ranking, amidst record high markup rate, hyperinflation and rising energy prices.
In a statement issued today, APBF President Syed Maaz Mahmood said that the already high cost of production has drastically reduced private sector borrowings during the outgoing fiscal year, besides the country has been far behind in the ease of doing business ranking. So, a major cut in markup rate was due, as constant high discount rate has been deteriorating the economic conditions, he added.
He said the SBP had kept the rate very high for the last many years, mainly to curb soaring inflation. However, it started holding rates steady for some time saying inflation had down in this period. It decreased rates by 200 bps at recent meeting in an effort to secure IMF funds, citing slightly deteriorated inflation outlook.
APBF Chairman Ibrahim Qureshi said that the central bank, in the past, constantly raised its key interest rate, exceeding investor expectations, as the cash-strapped country attempts to encourage the International Monetary Fund (IMF) to release critical funding. The key rate of the State Bank of Pakistan now stands at 15.5 percent, which is also highest in the region. Now, there are reports that the SBP would not cut the interest rate at the upcoming meeting of the Monetary Policy Committee (MPC) to please IMF.
Ibrahim Qureshi suggested the central bank to adopt an accommodative monetary policy stance, asking the finance minister to fulfill his commitment of reining in inflation besides cutting interest rate and strengthening the undervalued local currency against dollar. In the previous scheduled meeting of, the SBP maintained the policy rate unchanged citing that the decision took into consideration the impact of the surge in gas prices, which exceeded the MPC’s initial projections for inflation.
The MPC acknowledged that this could have repercussions for the inflation outlook, but also noted certain mitigating factors, such as the recent decline in international oil prices and improved availability of agricultural produce.
APBF president Syed Maaz Mahmood said the SBP had adopted a wrong way of dealing with inflation as high discount rate would jack up the cost of doing business that would ultimately hit the economic growth.
With weaknesses in private capital inflows continue to persist, the Central Bank should announce major cut in policy rates to spur growth, as cut would infuse confidence in the business community and propel economy which was hostage to the past policy of austerity. The businessmen expecting huge cut in interest rate, as the move could help boost private sector growth. He also complained that lending to private sector by the commercial banks during the current fiscal year has not picked up pace.
Syed Maaz also called for steps to fight energy shortage, security challenges and political instability to make interest rate cut meaningful and result-oriented. He called for supporting large scale manufacturing and credit to the private sector which is sliding, stopping flight of capital, improving tax machinery and curbing speculation of different sectors.
