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ISLAMABAD: The Finance Ministry has disclosed that 0.5 percent (50 basis points) increase in interest rate contributes Rs300 billion to domestic debt, whereas, members of the Senate Finance Committee termed the high policy rate as propelling the businesses to the verge of collapse, let alone growth.

After a meeting of the Senate Standing Committee on Finance was informed by the Finance Ministry, the chairman of the committee inquired from the official that “You mean one percent increase in policy rate contributes to Rs600 billion to the domestic debt”, affirmative was the response of the official.

The committee members one after another deplored the impact of interest rate on businesses, whereas, Deputy Governor State Bank of Pakistan (SBP) Dr Inayat Hussain said that interest rate is the only tool available to the regulator to control inflation.

SBP keeps key policy rate unchanged at 22%

Senator Zeeshan Khanzada said that the unreasonable increase in interest has made it difficult for businesses to sustain, let alone grow.

Senator Kamil Ali Agha wanted to know from the SBP the difference between the prices of food items when the interest rate was around seven percent and now at 22 percent.

Agha regretted that factories have closed owing to high and unsustainable interest rate.

Saleem Mandviwalla said that banks non-performing loans (NPL) would increase because of high interest rate and wondered whether in developing countries such as Pakistan interest rate is an effective tool to arrest inflation.

Deputy Governor SBP Dr Inayat Hussain apprised that the interest rate has been increased to control the rising inflation and it has bear significant result in the past few months. Upon this, the Chairman of the Committee questioned how the interest could be effective in Pakistan which is having a very large size of the informal economy and sought a detailed report from the SBP in this regard.

The committee was briefed on difficulties confronted by politically exposed persons (PEP) in availing the financial services.

The deputy governor SBP stated that the system is in place, wherein, a focal person has been deputed in every branch to sort such issues and assured the committee that the SBP would instruct the bank again to open the account without any delay.

However, he stated that the system has failed to provide desirable results due to unknown reasons. The committee recommended to sensitise all banks to make functional the dedicated PEP officers in all commercial banks, designated on the direction of this committee earlier.

Moreover, the Senate body discussed the causes of the reported low scores of Pakistan’s banks in terms of their human rights policies.

Representatives from Fair Finance Pakistan emphasized that Fair Finance is committed to ensuring that financial institutions in Pakistan prioritise the social and environmental welfare of local communities.

They highlighted the need for Pakistan to embrace a Green Banking policy that incorporates environmental and social concerns into financial operations.

The deputy governor of the SBP mentioned that the SBP is making efforts to align with international standards, aiming to improve the well-being of individuals.

Copyright Business Recorder, 2023

Comments

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Fahad Ahmed Oct 05, 2023 09:20am
500 bps is not 0.5%.
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Raza Ali Oct 05, 2023 09:23am
100 bps is equivalent to 1%. Cant expect such a typo from Business Recorder: "0.5 percent (500 basis point)"
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Ahsan Bin Asim Oct 05, 2023 09:32am
500 basis points constitutes to 5%, not 0.5%
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waqas Oct 05, 2023 09:45am
stupid pulisher (500 basis point is 5 %).
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Adil Ajaz Oct 05, 2023 09:53am
0.5% means 50 Bbs not 500bps.
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Qamar Hussain Oct 05, 2023 10:34am
500 bps? That becomes 5 percentage points.
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Abrar Ahmed Oct 05, 2023 10:41am
SBP is also a thief, like the gas and electricity theifs. SBP help banks steal from both public and the Govt simultaneously. 40% of bank deposits are in current accts and 80% of this money is loaned to GoP at 23% interest rate. Hence while banks charge an average of Rs 10,000 from current account depositors on numerous fees (again in connivance of SBP) annually, they lend this money to GoP through SBP at 23% interest, what a joke. The vultures nesting in SBP and being fed by IMF, need to be culled and buried in gutters.
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Babar Shah Oct 05, 2023 10:55am
500 bps is 5%, 0.5% is 50 bps
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Muhammad Oct 05, 2023 11:27am
who said anything about 500 bps. All their writing belongs to 0.5% (or 50 basis points) increase in interest rates and its impact on domestic loans.
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Arif Oct 05, 2023 11:50am
Out of that 50 bps , government takes 35-50% back as Taxes on interest income . Try to live within means for a change by stop buying SUVs and Vego’s , stop going on useless foreign trips , and stop giving 30+ raise to Government servants with Zero productivity.
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E Oct 05, 2023 01:25pm
@Abrar Ahmed, central banking and that too autonomous central banking is a recipe for disaster. Yes, there should be cap on gov borrowing but wild increase in interest rate results in decresed business. Sbp auuonomy bill should be reconsidered.
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Mian Ahmed Oct 06, 2023 01:16am
Why can't government cut 50% of its total interest payment to local banks?
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