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Business Community has expressed concern over State Bank of Pakistan's (SBP) unchanged policy rate which has disappointed the business community.

President of Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Mian Anjum Nisar expressed serious concern over the SBP unchanged policy rate which is at the highest in the region and in this state of monetary economy industry cannot survive and to compete in the international market is absolutely impossible.

Policy rate in India is 5.15 percent, China 4.35 percent, Sri Lanka 8.0 percent, Malaysia 3.0 percent, Thailand 1.25 percent, and Indonesia 6.5 percent while policy rate in Pakistan is 13.25 percent. Economists have consensus on the use of expansionary monetary policy in the state of low economic growth and reduction in GDP to control over the damaging effects of low growth on employment and investment.

He said that the SBP is continuously following contractionary monetary policy and kept the policy rate at 13.25 percent while on the other side the government is not providing input material to the industry such as energy at an affordable level.

Industry is also facing high cost of doing business in Pakistan due to infrastructure and policy bottlenecks. Continued monetary tightening has constrained private sector cash flows and Non-performing loans (NPLs) are rising. NPLs have increased by more than twenty three percent since it has adopted tight monetary policy.

He said that the SBP keeps the high interest rate due to inflationary outlook while in Pakistan the inflation is cost push that cannot be controlled through contractionary monetary policy.

The major cause of rising inflation in the country is increase in the prices of industrial inputs and shortage of essential items of daily necessity.

Actually, first the high cost of electricity, gas and petroleum products fuels the inflation in Pakistan and to control over it SBP follows tight monetary policy.

Mian Anjum Nisar urged the SBP to reduce the policy rate in order to increase the demand of private sector credit which will ultimately help in new industrialisation and economic growth.

President Pakistan Businessmen and Intellectuals Forum (PBIF), Mian Zahid Hussain on Wednesday said the central bank has disappointed the business community by keeping interest rates unchanged.

Political instability, double-digit inflation, double-digit interest rates, rising prices of energy and increasing tax burden is eroding the confidence of the business community, he said.

The profit of banks is soaring beyond reasonable limits amid economic slowdown which is not good for the economy, he said.

He noted that the deal with the IMF has not improved the situation as expected, all major targets could not be achieved and the economic infrastructure seems to be in a shamble.

The inflation has taken a toll on the masses, as well as the economy, while per capita income has reduced substantially while only good news is a reduction in the current account deficit, he noted.

He said that the current account deficit was not reduced by increasing exports but by decreasing imports which reduced it by almost four billion dollars but resulted in massive closures of businesses, unemployment and contraction of GDP by almost forty billion dollars.

He said that the majority of the traders and industrialists think that the economy can be turned around but it will require cooperation of the government which will make the current year better than painful 2019.

Business community holds an opinion that the monetary policy has failed to tame inflation and that the economic slowdown will continue to haunt the country if their reservations were ignored.

Mian Zahid said that the government has planned to provide hefty funds to politicians which will add to inflation. These funds should be used to trigger growth, he demanded.

Economic & Financial Analyst, Ateeq Ur Rehman said that the policy makers should have pursued a proactive fiscal policy and should have cut the interest rate in order to support the flagging economic growth.

The SBP decided to keep the policy rate unchanged at 13.25 percent for next 2 months. As a matter of fact such hike in interest rate is to attract and retain "hot money" whereas on the contrary it has alarming impact on local trade and industry, which is not a healthy sign and will bring adverse effects on the economy said Ateeq Ur Rehman.

Such high interest rate is disastrous to the access to finance for the business community as a whole and for SMEs and startups in particular. Ateeq added that following the higher the interest rate the NPLs will continue to escalate. The rates and payment of car/house financing (consumer financing) will be unbearable.

The cost of doing business and cost of production will continue to shoot up to the level of uncompetitiveness. Also the cost of borrowing will be huge and capital financing shall remain more expensive.

He emphasised that country's reliance on additional borrowing is upsetting, the Portfolio Investors, who are following anxiously our Monetary Policy are kicking off on highest bullish note.

They have been and will continue to support the current rally by buying stocks in order to earn towering gains and repatriate the huge yields.

These easy gliders will fly more high because of these high interest rates. Foreign Investment and treasury bills reaches record USD 2.2 billion over 95 percent investment in T-bill came from UK and USA. These inflows are from "carry traders", meaning investors who borrow in one country where interest rates are lower and lend to another where the rates are higher, making themselves earn in tight spread in between.

Copyright Business Recorder, 2020

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