Analyst says high interest rate to undermine growth objective

KARACHI: In the Recent Monetary Policy the State Bank of Pakistan left the benchmark interest rate unchanged at 9.75% for the next one and half month, significantly higher than the countries in the region, which is a surprise for the business community, said Ateeq Ur Rehman, economic & financial analyst.

He said basically, Pakistan is struggling for foreign and local investment mobilization in order to boost revenue, create employment opportunities, restore sick industries and above all practically grow industrialization.

A high rate of interest rate shall not help and support the requirement. He said that the details of monetary policy have highlighted the improved inflationary atmosphere due to Prime Minister’s relief package but it is silent on the inflationary impact of the package which projected the raise in current expenditure by over Rs. 300 billion which may grow to Rs. 500 billion till end June 2022. The rates will, thus, not be effective.

Raise in Interest rate is negatively impacting on productivity of LSM sector due to high cost of raw material and high cost of production due to dependence on energy production by imported Furnace Oil and LNG, he said.

Ateeq added that the circular debt swells to nearly Rs. 2.45 trillion, gas prices hiked at a record peak, imported coal jumped to $189 per tonne, oil Prices soared to $130 per barrel. He said with this scenario Pakistan is heading towards almost $18 billion Current Account deficit. He said imports are towering/ trade deficit is widening, and under such circumstances it is requested to reduces the interest rate to as low as 3% to 4%.

Copyright Business Recorder, 2022