Not reducing policy interest rate to below 7 percent by SBP disappoints the business community
Islamabad: The business community in a meeting at Islamabad Chamber of Commerce & Industry (ICCI) has expressed disappointment at maintaining the policy interest rate at 7 percent by the State Bank of Pakistan and demanded that it should have been brought down to at least 3 percent in order to stimulate the business and investment activities in the country.
Chairing the meeting, Sardar Yasir Ilyas Khan, President, Islamabad Chamber of Commerce & Industry said that to enable the businesses to combat the impact of Covid-19 pandemic, the governments around the world made drastic cut in the policy interest and the business community in Pakistan had also been demanding of the government to make significant cut in interest rate to ease the problems of businesses, but it was unfortunate that the SBP has not given due consideration to their demand and maintained it at 7 percent in its latest monetary policy review.
Sardar Yasir Ilyas Khan said that the policy interest rate in Japan was -0.1%, Euro Area 0%, US & Canada 0.25%, UK & Australia 0.1%, Malaysia 1.75%, Philippines 2%, Indonesia 3.5%, China 3.85% and India 4%, but it was still 7% in Pakistan, which was very high compared to the regional and other countries. He further said that the average policy interest rate in Pakistan remained 11.08% from 1992 to 2021, which showed that Pakistan tended to keep borrowing cost for businesses and investors quite high, which is not a supportive approach for growth of the economy.
ICCI President said that the high interest rate always tends to reduce the economic growth as it increases the borrowing cost for businesses, reduces the disposable income and limits the purchasing power of consumers, which ultimately leads to further contraction in the business activities. Therefore, in the prevailing circumstances when the businesses are struggling for survival due to the restrictions of Covid-19 pandemic, it was the most opportune time that the SBP should have reduced the policy interest rate to bring it down to at least 3% in order to provide cheap credit to businesses and investors. He emphasized that the SBP should revise its monetary policy and reduce policy interest rate to 3% before the close of this fiscal year that would help in promoting SMEs and reviving the growth of business and industrial activities in the country.