KARACHI: Industrial and export oriented sectors termed increase in policy rate (basic points system) by 50 bps to 6.5 percent by State Bank of Pakistan (SBP) as business unfriendly attitude on Saturday.
The business community was expecting reduction of 100 basis points in policy rate for the period of next two months.
The increase in policy rate would put export oriented and other industrial sectors in hard time as these sectors were facing grappling economy and financial crunch.
Besides prospects for investment climate would become weaken that were all important providing financial relief to industrialists especially exporters, industrial people were of the view.
Representatives of chamber of commerce and industry in the country besides associations of industry and trade along withFederation of Pakistan Chambers of Commerce and Industry, All Pakistan Textile Mills Association, Pakistan Tanners Association (PTA), Pakistan Cotton Ginners Association (PCGA), Surgical Instruments Manufacturing Association Pakistan (SIMAP), All Pakistan Marble Mining Processing Industry and Exporters Association (APMMPIEA) and other industrial and importers trade organisations said upward revision in policy rate would create liquidity crunch to the industry, which was already braving high cost of energy and production besides other crisis.
Policy rate increase would weaken exporters’ competitiveness in international market as they could not avail loan facility on higher bank interest rate besides it would weaken productivity level.
India, Bangladesh and Sri Lanka are remained the major competitors in the international market.
Increase in policy rate would encourage government the major borrower of the commercial banks to borrow more money.
Agha Saiddain senior member of PTA said availability of surplus liquidity in the market is always essential and prime reason behind investment in the industry. But after increase in policy rate liquidity would shrink.
Increase in bank mark-up rate would discourage fresh investment in the industry particularly in the leading exporting textile and leather industry.
The SBP’s policy rate increase would keep the cost of living, the cost of doing business and rate of defaults and unemployment higher and within no control limits.
Private sector would not become able to attract and raise fresh funds, Ghulam Rabbani, senior member Karachi Cotton Association said.
Higher rate never helped government in reducing imports of oil, food, raw material and essentials while it has reduced growth and savings, triggered unemployment and made imports costly.
Increase 50bps in policy rate is not positive for stock valuations and earnings of leveraged companies and for overall economic revival.
This step would not help to control unemployment and expansion plans of industry and it would be better if mark up would come to 5 percent.
Private sector commercial banks’ borrowing would not get momentum and banks would prefer lending to government on higher interest rate as well as the private sector would be wary from borrowing bank loan.
The current decision shows SBP was not initiating in right direction and does not think for the growth of industrial sector. The step will not help to keep control inflation to average 10-11 percent in next two-three months.
The textile, leather and other billions of dollars exporting sectors of the country have great potential to attract foreign investment.
Members of KCCI said different segments of the society were expecting downward revision upto 2 percent that could benefit industry and trade.
Industry was facing hike in power tariffs of 65 percent, 35 percent for commercial and 16 percent for residential consumers.
APMMPIEA Chairman Sanaullah Khan said increase in policy rate would not helpful for developing export-oriented industrial sectors including marble, surgical and sports, as they were in need of commercial bank loans and funds from other sources on reasonable rates.
It would not ease helping returning banks’ loan by the borrowers, which would increase the ratio of non-performing loans (NPLs).
This increase would not provide any help smoothing food supplies, contain price of perishable items, administrative prices and there is likely a higher inflation rate.
Businessmen and industrialists were expecting 100 points cut in discount rate (DR) by SBP in upcoming Monetary Policy statement.
The major indicators including headline inflation level and consolidation of external account made a favourable room for SBP to cut DR significantly. Analysts said the probability is high and SBP will follow a gradual policy of reducing benchmark interest rate because it is difficult to forecast the global price of oil after a sudden fall.
Improved external sector outlook could be another key trigger for a likely rate cut as its scenario has also been very stable lately as total foreign exchange reserves of the country currently stand at $10.6 billion.
Money market was anticipating a 100bps cut in upcoming MPS as yields on government securities have declined significantly.
Real interest rates have also increased significantly due to widening gap between interest rates and inflation.
Published in Daily Times, May 27th 2018.