FPCCI wants competitive interest rate at regional countries level

by index360

Lahore: The country’s apex chamber has welcomed the central bank for maintaining status quo for the second consecutive times, but called ‘the 7 percent main policy rate’ as insufficient, especially in the extraordinary prospects amidst fear of trade and industrial lockdowns, as the second wave of corona pandemic has just started. 

FPCCI President Mian Anjum Nisar, while talking to a trade delegation, said that the State Bank’s keeping the discount rate unchanged at 7 percent is not understandable when it also expresses satisfaction over declining inflation and rising the growth, saying the risks to the outlook for both growth and inflation appeared balanced. 

The trade delegation, which met him here in his office today, also raised its serious concern over the high interest rate in the country as compared to the region. 

Nisar said that the recent reduction in electricity tariff for SMEs was the first step towards cut in production cost while the second and vital step toward this direction would be bringing discount rate to the regional level with a view to provide level-playing filed especially to the export industry.

“The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandize in the country following FTAs with several countries, including China,” he added.  

He said “FPCCI appreciates the central bank to bring its policy rate to 7 percent from a high of 13.25 percent and several other measures of continuing fiscal, monetary and credit stimulus, but suggest the SBP committee more reduction of interest rate to cut it to at least 5 percent. So that the industrial production, which has already been indicating a recovery and that is an encouraging sign, should continue.” 

The FPCCI President said that in view of the policy rates in neighboring countries Pakistan’s 7 percent was very high, and a reduction in the policy rate was essential to make Pakistani exporting sector as well as the local industry competitive.

He said that after the corona devastation, Pakistan should take advantage of those export orders canceled by the other regional countries. For this, the government will have to reduce production cost of the industries to avail this offer by the international buyers. 

Nisar said the future anticipated expected inflation will further decline due to low demand amidst second wave of coronavirus. On the other hand, external front is also presently sustainable due to foreign financial support and rescheduling of debt that has supported reduction in current account deficit, he added. 

He further stated that with both demand-driven and import-based inflation is in check, so it needs to further slash the interest rates as the businesses cannot survive on such uncompetitive KIBOR rate. The central bank should also advise the commercial banks to revise KIBOR on a monthly basis instead of quarterly to pass on the benefit of lower rates quickly to the businesses. The impact to banks on their deposits will be insignificant as majority is demand deposits instead of time deposits. 

While appreciating the central bank’s role in sustaining economic growth through supporting trade and industry, the FPCCI president said that reduction in interest rate would be the vital relief to the business community. 

He said SBP should take measures and develop strategy to protect the pace of economic and trade progress of Pakistan otherwise the country might face again lower industrial growth and shifting of industrial units to the sick industry. 

He said that the SBP has accepted that inflation is due entirely to an increase in food prices and that these supply side pressures are likely to be temporary and average inflation is expected to fall within the range of 7 to 9 percent.

Moreover, the large scale manufacturing index (LSMI) of food has also increased from negative to positive, growing by almost 13 percent, which should continue with the support of government policies. The MPS has also referred to growth recovery and stated that large scale manufacturing output is continuing to rebound, expanding by 4.8 percent. 

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