Daily Times

The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) on Sunday observed that the high borrowing costs are indeed choking the industries at a time when they are in desperate need of breathing space as interest rate status quo displeased businesses across the country.

FPCCI former president and BMP Chairman Mian Anjum Nisar, while having a reality check, stated that country’s economic house is not exactly in order. Inflation may be at record lows, but global risks are rising. The rupee is always one shock away from slipping, oil prices are shooting up, and food costs are unpredictable. A premature rate cut at this stage not only increases private sector borrowing and spending but also risks fresh inflationary pressure and capital flight. The bank saw the danger and chose not to gamble, because the last thing Pakistan needs is another round of imported inflation.

Anjum Nisar observed that the cheaper credit makes businesses happy, but it must be kept in mind that growth built on artificial stimulus is never sustainable. Any reckless move could land Pakistan into another boom-bust cycle, and that is unaffordable this time.

Several experts hailed the State Bank’s cautious approach to keep the interest rate unchanged at 12 per cent on Monday, but the bulk of the business community was up in arms against the central bank for not bringing down the policy rate by 500 basis points even though inflation was as low as 1.5pc last month.

The central bank’s decision to hit the brakes on its key policy rate cuts is a cautious move. Keeping interest rate unchanged at 12% came as a shocker to many, as the market was all but certain of yet another major reduction. Caught between market expectations and economic reality, the State Bank of Pakistan’s call is tough but necessary.

While everything seems to be going well for the economy, the SBP is not buying the optimism. The country has witnessed a series of aggressive slashes over the past six months. That indeed has helped revive the economy. Additionally, inflation now stands at a near-decade low of 1.5%, and authorities are hopeful of securing the $1 billion tranche from the International Monetary Fund during the ongoing review. Overall, things look pretty good from this angle.

The businesses and consumers might feel left out in the cold. The SBP is playing the long game to ensure that rates do not just come down but also stay down. Also, let us not pretend this decision was all about economic prudence. The bank’s move simultaneously signals discipline to the IMF and reassures creditors, keeping its powder dry. The matter of fact is that despite positive indicators, the country’s economy is still walking a tightrope. Calculated risks could be taken, but not with so many warning signs. One thing Pakistan needs right now is a steady hand on the wheel. The SBP’s approach may seem frustrating, but restraint is sometimes the smartest strategy. I am not satisfied that SBP made a sound decision by not surrendering to pressure for rate cut. The economy needs sustainable steps to overcome challenges and improve investors’ confidence.

He said the Monetary Policy Committee of the SBP had opted to follow a cautious approach by maintaining the policy rate at 12pc.

’With core inflation sticky at 7.8pc, pressure building on the external account due to rising imports and weak financial flows, along with declining forex reserves, are all valid reasons for this cautionary stance,“ he said. “Economic stability is still fragile and a risk-averse approach is justified.”

Former President of the Federation of Pakistan Chambers of Commerce and Industry said the entire business and trade community was disappointed with the monetary policy as the central bank continues to base its decision on a heavy premium vis-à-vis core inflation.

“The SBP kept the policy rate at 12pc even though inflation was at 1.5pc last month, reflecting a premium of 1,050 basis points vis-à-vis core inflation.”

The BMP had called for an immediate and single-stroke rate cut of 500bps to rationalize the monetary policy and align it with the vision of Special Investment Facilitation Council for revving up economic growth and exports.