Daily Times

According to Kaiser Bengali, a renowned economic and business analyst, the recent rise in interest rates by the central bank may lead to an increase in economic deterioration.

The SBP stated that the interest rate has been hiked to contain inflation; however, inflation is caused by the supply side of the economy. This was stated by the renowned economist Kaiser Bengali while talking with Daily Times on Friday. When there is a rise in demand-side inflation, it is in the economy’s best interest to have a higher interest rate. The general populace will feel an even greater sense of unease as prices continue to rise as a direct result of rising interest rates. People in this country no longer have the funds to save, thus they are unable to benefit from the rise in interest rates on their investments.

Answering a question, Qaisar said the ban on imports was a good idea, but the government couldn’t handle the pressure, so instead of lifting it, incentives for local production should have been provided, and now the people themselves should decide whether or not they prefer imported goods over those made in the country themselves.

Exchange Companies Association of Pakistan general secretary Zafar Paracha while talking with Daily Times said, it appears that the government and the SBP are not on the same page. This is because following a non-stop increase in interest rates, not only should the currency be stable, but also inflation should come down. However, neither of these things has occurred.

Zafar described the decision made by the government to lift the ban on imports as being incorrect. He stated that the $2.5b that was borrowed from China should have increased reserves, but that it will instead be spent entirely on the nation’s import bill, resulting in the situation becoming even direr for the country.

After the SBP’s monetary policy meeting on Thursday, the benchmark policy rate was raised from 15pc to 125 basis points. In addition, the SBP raised the rates for the Export Finance Scheme (EFS) and the Long-Term Financing Facility (LTFF) to 10pc, tying them to the policy rate.

AAH Soomro, an economic expert who formerly served as managing director at KASB Securities, is of the opinion that the most recent action taken by the central bank “is far from a soft landing.”

Soomro added in a series of tweets that the impact may have been mitigated if there hadn’t been a political vacuum, hesitation, and passing of higher fuel costs. “Perhaps, the dollar at Rs190, and the interest rate at 13pc.”

However, inflation is currently above 20pc, and he predicted that the most recently move the government has taken, which is to increase the price of energy by 7.9 rupees per unit, will keep inflation in FY23 around 18 to 20pc.

The Monetary Policy Committee (MPC) underlined in its statement that, as a result of the repeal of energy subsidies, headline and core inflation notably increased in June, with the former reaching a 14-year high.