Business community hails cut in key discount rate

RECORDER REPORT

KARACHI: The trade and industry community has welcomed the State Bank of Pakistan (SBP)’s move to reduce discount rate by 1.5 percent in its monetary policy announced on Friday.

While appreciating the SBP move to slash its benchmark interest rate by 1.5 percent from 12 percent to 10.5 percent for the next two months they said that this step would benefit some sectors, specially the stock sector.

They said that discount rates are still on higher side and urged the Governor Central Bank to further reduce it and bring it down to single digit.

Although State Bank has announced a decline in basic policy discount rate by 150 basis points, the rate of interest in Pakistan will remain highest in the world.

Currently market interest rate in India is 3 percent, in USA 0.3 percent, in UK 0.9 percent, in Japan 0.4 percent and it is 10.5 percent in Pakistan, they quoted.

Due to high discount rate in the region and in the world, the production of Pakistan had become uncompetitive. They demand the central bank to reduce the rate further to single digit.

They said that the business community, for a long time, had been demanding the reduction in the discount rate to enhance the production, which is badly affected by various reasons, including the high discount rate.

Chairman of SITE Association of Industry (SAI) Irfan Moton expressed that political stability, sufficient energy and controlled law and order are must along with cut in interest rate for creating investment climate in Pakistan.

He said that the availability of interest free loan would even not work for industrialization in the country if stability on said fronts was not guaranteed by the rulers.

He said that the rate cut might have made the financing cost manageable for new ventures in the industrial sector.

He said reduction in government’s borrowing from banks is a must for expediting investment process in the industrial sector.

Chairman Korangi Association of Trade and Industry (KATI) Ehtesham Uddin said that business community is firm on its demand to bring down the interest into single digit in order to provide breathing space to the industrial sector.

He said that many countries including Japan and USA have brought down interest rate to zero percent considering the economic slowdown and in quest to revive their economies.

He hoped that SBP would finally reduce the discount rate to below nine percent considering the mounting non-performing loans which have now crossed the alarming level of Rs. 500 billion mainly due to closure of industry.

Ateeq-ur-Rehman prominent businessmen said that cut in policy rate to 10.5 percent is a fist step towards reviving industry in the country.

He emphasizes the need of further cut in interest rates and it should be brought down to 7.5 percent.

Senior Vice President Karachi Chamber of Commerce and Industry (KCCI) Younus Bashir said that it is a welcome move from the SBP. The central bank accepted the demand of the business community by lowering the rate, he said.

Member KCCI, Shaminm Firpo termed the reduction as first step in right direction.

President KCCI Mian Abrar Ahmed appreciated the State Bank’s move to reduce discount rate by 150 basis points in monetary policy and urged to bring it down to single digit.

He said that at present, the situation is compounded because the credit of private sector is going up whereas reluctance is also observed by banks for providing financial support to industry due to energy crisis and negative industrial growth owing to high cost of production and manufacturing as well as massive borrowing by the government.

He stated that to attract foreign and domestic investment, good law and order, political stability, provision of uninterrupted electricity and low interest rates are crucial. He said that he as President KCCI has strongly recommend to Government of Pakistan to come up with clear cut energy security plan for next 20 years to be shared and approved by all political parties of Pakistan and finally to be approved by the Parliament thus all political parties whether in the government or not would be responsible to follow and implement the proposed energy security plan.

This 20 years’ Energy Security Plan should be based on 40 percent from nuclear, 40 percent from Thar Coal and 20 percent from hydel and alternate energy or else coming generations of Pakistan would never forgive governments of the time.

In Pakistan due to energy crisis our industry is working eight hours or less than that compare to India, China and other countries where industry is running 16-24 hours per day.

He perceived that the concerned quarters raised the interest raise on the basis to cut down the inflation but in vain. He urged that Governor State Bank of Pakistan to ensure participation and consultation of KCCI and other stakeholders in formulation/ debate and implementing of Monetary Policy.

He stated that the worst ever energy crisis of the history demands an immediate national energy plan, elimination of load shedding and decreasing trend in highest ever utility tariffs, discount rate in single digit which have collectively increased the cost of production and manufacturing and emerged as the most critical factors hampering the economic activity and industrial growth of Pakistan.

Patron In-Chief KATI, S M Muneer, President All Karachi Industrial Alliance (AKIA) Mian Zahid Hussain, Vice Chairmen Hasham A Razzak Tariq Malik and Chairman Press and Media Committee, Syed Johar Ali Qandhari while welcoming the decision by Governor State Bank of Pakistan (SBP) Yasin Anwar to bring down the interest rate from 12 percent to 10.5 percent said that trade and industry is demanding for long to reduce interest rate considering the worst scenario of national economy and sinking industry due to high input cost and ever-increasing prices of POL and utilities tariffs.

While appreciating the State Bank of Pakistan move to slash its benchmark interest rate by 1.5 percent from 12 percent to 10.5 percent for the next two months, M. Jawed Bilwani, Chairman, Pakistan Apparel Forum stated that while this step would benefit some sectors, specially the stock sector.

However, its impact would be limited and will not benefit the major sector of our economy the “manufacturing sector” including the Value Added Textile Sector which not only has the potential to earn huge amount foreign exchange for the nation but also to keep lawlessness checked by generating the largest employment – almost over 42 percent of the total employment both of male and female workers. Further this is the sector which can properly balance the trade deficit.

He proposed that the State Bank of Pakistan should aim to reduce markup rate on the Export Finance Scheme (EFS) to 5 percent as declared in the Textile Policy 2009-14. Furthermore it was imperative that for this vital exports manufacturing sector, separate special tariff of utilities such gas, electricity and water be fixed and be freezed for a minimum period of one year. Bilwani also emphasized that the government should take cognizance of the present serious law and order situation and ensure that this is immediately improved on a war footing to encourage not only the remaining entrepreneurs but potential investors to establish and run their business peacefully.

Chairman FPCCI Standing Committee on Exports, Dr. Mirza Ikhtiar Baig has hailed decision of State Bank of Pakistan. While talking to Governor SBP Yaseen Anwar, he emphasized that the Export Refinance rate should also be reduced to bring down cost of doing business of our exporters.

Dr. Baig identified two main reasons for the discount in rate cut, the decline in investment resulting reduction in investment to GDP ratio sharp decrease in private sector credit. The reduction in the rate will support the industrial activities and will pick up private sector credit essential for the economic growth which has become stagnant.

Governor SBP informed Dr. Baig that the inflation outlook has improved with the projection of 10.5 percent for year 2013 but it depends upon the fiscal restrain on borrowing from SBP.

Dr. Baig requested Governor SBP its long awaited demand of the business community to bring down the bank lending rates to single digit to attract new investment and job creation and to achieve required economic growth.

Dr. Baig said that the reduction in discount will also send a message to commercial banks to lend more to the private sector rather than placing their funds in secured government treasury bills for higher return.