KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has linked the interest rates of Export Finance Scheme (EFS) and Long-Term Financing Facility (LTFF) with policy rate.
After the MPC meeting on Thursday, in a press conference the acting governor SBP Dr Murtaza Syed informed media that the interest rates of export incentive schemes, including EFS and LTFF loans are now being linked to the policy rate to strengthen monetary policy transmission.
The committee has decided that there will be a gap of 500 basis points (bps) in the policy rate and EFS or LTFF interest rate. “While continuing to incentivize exports by presently offering a discount of 500 basis points relative to the policy rate, which rose to 15 percent on Thursday,” the SBP announced.
Accordingly, the SBP has issued a circular for new rates for the EFS and LTFF schemes. As the EFS and LTFF have now been linked with SBP policy rate by keeping these rates currently 5 percent below policy rate. With effect from July 8, 2022 mark-up rate for financing under EFS (Part-I & Part-II) has been increased from 7.5 percent p.a. to 10 percent p.a.
In addition, the mark-up rate for financing under LTFF goes up from 7 percent p.a. to 10 percent p.a.
Business community rejects increase in EFS, LTFF rates
According to the SBP, with any change in the policy rate, mark-up rates for EFS and LTFF will be revised automatically so that the gap between policy rate and EFS and LTFF rates is maintained at 5 percent. However, the SBP clarified that this gap is subject to revisions in view of future economic activity.
In the previous MPC meeting held on May 23, in addition to a 100 bps increase in key policy rate, the interest rates on EFS and LTFF loans were also raised. In May, mark-up rate for financing under EFS was enhanced from 5.5 percent p.a. to 7.5 percent p.a. and mark-up rate for financing under LTFF was enhanced from 5 percent p.a. to 7 percent p.a.
In addition, the MPC decided that EFS and LTFF rates will be linked to the policy rate and will adjust automatically, while continuing to remain below the policy rate in order to incentivize exports.
Copyright Business Recorder, 2022
Comments
Comments are closed for this article.