Inflation to remain high despite policy rate hike: analyst

KARACHI: The State Bank of Pakistan’s (SBP) decision to increase key policy rate by 100 basis points to a record high of 21 percent, with a view to controlling inflation, is simply not acceptable to the business community, says economic and financial analyst Ateeq-ur-Rahman.

“Inflation is expected to stay at an elevated level as we are a cash economy, not a mortgage economy; therefore this huge increase in policy rate will not reduce inflation, especially food inflation,” he said.

He was of the opinion that prices will remain high due to demand and supply gap for essential items, exchange rate depreciation and upward adjustment of prices of petrol, diesel, gas and electricity.

“Economically speaking, in our country supply chains have severely been affected due to closure of various industries, owing to government restrictions on opening of LCs, and this massive raise in basis points will affect tremendously the logistics and supply chains again,” said Ateeq-ur-Rahman.

In a broken economy like Pakistan’s, wealth creation is important, which is not possible without working capital. Working capital is only available where access to finance is easy and cost of credit is low.

The business community, industrialists, traders, SMEs and cottage industry are all suffering because the SBP has been increasing the key policy rate from time to time, he added.

Copyright Business Recorder, 2023