This refers to the front page news of Business Recorder, Islamabad, of June l2th, 2005, quoting State Bank Governor that 'interest rates will go up further.' The Governor of State Bank is stated to have said this while addressing members of the SITE Association of Industries on Saturday. He said that the interest rate in Pakistan has a direct link with inflation and if inflation increases the rate of interest would go up automatically.
The above statement appears to be incorrect. As the rate of interest charges to the borrower will be part of the cost of production any increase in the rate of interest will increase the cost of product which will be a catalyst for increase in the rate of inf1ation. I would request the Governor SBP to please clarify the position if it my version is incorrect.
I would also request eminent economists of the country for their valuable comments on the above stated situation.
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