Banks and leasing companies raise car, home loans interest rate

The banks and leasing companies have increased interest rates up to 13 percent for car and home loan schemes and they expect further increase before the end of the current fiscal year. A credit officer of a leading leasing company believed that interest rates for all schemes will go up to 15 percent by June 30, 2005. The bankers claimed that high inflation rate was the main reason of high interest rates. Inflation rate is showing upward trend after a gap of two years.
An Islamabad-based credit officer of a leading leasing company told Business Recorder here on Friday that the commercial banks and leasing companies were strictly following the State Bank of Pakistan (SBP) guidelines for credit facilities, and upward trend in interest rates for loan schemes was due to tightening of monetary policy.
The SBP had introduced soft monetary policy for the banks and leasing companies sometimes back and this pulled down the interest rates for all loan schemes.
This also resulted in cut-throat race among the banks and leasing companies for reducing interest rates to attract maximum number of clients.
The competition was good news at least for loan seekers who could get loan for buying car or home at as low as 6 to 7 percent interest rate. The credit for long-term projects was available even at less than 4 percent interest rate.
It may be noted that the banks and leasing companies were charging high interest rates on credits up to 2003. The interest rates up to 2003 were ranging between 18 to 22 percent.
The economic managers are in favour of further tightening of the monetary policy.
They argue that there was no harm in further tightening monetary policy if after all it was needed in the changing economic scenario. The bankers also agree with the policy makers that tightening up of monetary policy was inevitable for the SBP. Rather they believe that the Central Bank was already late in reviewing the soft monetary policy.
They argue that the SBP should have reviewed its policy much earlier to avoid hard decisions like pushing up interest rates as high as 15 or 16 percent in short span of time.