State Bank of Pakistan (SBP) governor Dr Ishrat Husain said on Friday that government intends to bring down the inflation rate to eight percent, while interest rate has direct link with inflation rate, and when inflation would come down, the interest rate would slash automatically.
While addressing the Lahore Chamber of Commerce and Industry (LCCI) members, he said that present phase of inflation was temporary and the SBP had to keep its monitory policy tight due to this reason. "Nevertheless, the industrialists also get benefit of soaring prices due to increase in their profits."
Dr Ishrat said that the central bank would keep its monetary policy tight till the inflation was not controlled. He said that for four years inflation rate was very low and there was monetary expansion.
However, he added, that this credit expansion resulted in increasing inflation while other factors include high oil prices, food inflation such as rise in the prices of wheat, sugar, onion, meat and other items.
The SBP governor said that the government had taken many steps such as importing sugar on zero-rate from India and other edible items to curtail the inflation and added that it was our effort to keep inflation rate at 8 percent during this year.
By increasing interest rates, deposits in banks would also increase and there would be less investment in stock exchange, real estate etc. He said that there were 28 million depositors and only 4 million borrowers, and interest of such a large number of depositors could not be ignored.
Talking about the target of credit, Dr Ishrat said that target for private sector was only 'indicative', as there was no bar on extending credit to the private sector. 'Only government and corporations could not exceed from the target, while private sector every year surpasses the given target', he said.
He said that the SBP has never asked the banks not to exceed credit target for the private sector. However, the SBP chief said that this year there was tightness in credit plan, as government wanted to divert the money in to production activities instead of real estate, stocks etc.
Regarding the priorities, Dr Ishrat said that SMEs and agriculture were the priority sectors for the government, as they generate 90 percent employment. "From the last five years even the private banks had started extending loans to the agriculture sector. Last year, they extended loans of Rs 108 billion while this year credit line for the agriculture sector would be Rs 130 billion."
While in SME sector, the SBP governor maintained that prudential regulations were made and Pakistan became the first country having such tailor-made rules. Last year, Rs 70 billion were given as credit to SME sector and target for this year was around Rs 100 billion, he added.
Dr Ishrat advised the business community to work only for the progress and prosperity of the country. 'We had to put in joint efforts for resolving the problems of those 33 percent leading life of poverty', he said. He said expansion in industrial and business activities would create more employment opportunities.
About WTO, he said that Pakistani industrial sector had already made necessary adjustments.
The SBP governor said that duties were cut down to 25 percent maximum and 10 percent average. Dr Ishrat said that he was very confident of the potential of Pakistan but our industry and business had to take few steps in right direction, adding instead of making demands and lodging complaints Chambers should focus on research.
He said that they should have research departments, carrying out market surveys so that they would have influence on policies of the government.
Throwing light on banking sector, Dr Ishrat claimed that in Asian region there was no competition to Pakistani banking sector. He said that 25 percent loans extended by the banking sector were non-performing in 1999, while now they are only seven percent.
The SBP chief said that under circular BPD-29/2002, 50,000 non-performing companies were given relief. He said that now out of the newly given loans, only two to three percent were non-performing. He said that corporate tax was cut down from 58 percent to 35 percent and efficiency of the banking sector was improving through various measures.
Replying to another query about development and progress of China, Dr Ishrat said that through sheer discipline and hard work, China that once had 50 percent poverty rate had succeeded to cut it down to eight to 10 percent.
Earlier speaking on the occasion, LCCI President Mian Misbahur Rehman said that the production cost was major concern for local entrepreneurs, as repeated increase in the prices of fuel and energy were leaving negative impact on business.
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