MCCI voices concern over monetary policy

President of the Multan Chambers of Commerce and Industry (MCCI), Anis Ahmed Sheikh, expressing his serious concern over monetary policy, has said that the present monetary policy is not an expansionary monetary policy, instead it is the continuation of the previous monetary policies, which have been adopted by the State Bank of Pakistan (SBP) since the last three years.
Economists have consensus on the use of expansionary monetary policy in the state of recession to control the damaging effects of recession on the employment and investment.
Although, the SBP has announced a decline in basic policy discount rate by 100 basis points, the rate of interest in Pakistan is still highest in the world. Currently, market interest rate in India is 3 per cent, in USA 0.3 per cent, in UK 0.9 per cent, in Japan 0.4 per cent and it is 12 per cent in Pakistan, moreover, banking spread in the country is 7.7 per cent, which is the highest in the world and in this state of monetary economy, industry can not survive for long and it cannot compete in the international market either.
Criticising the statement of Governor SBP, which tried to justify that the persistence of high interest rate is the result of prevailing high inflation rate in the country, Anis Ahmed Sheikh said that this hollow justification clearly indicated that SBP prepared monetary policy without studying the nature of inflation.
Furthermore, he added that in the country the nature of inflation is not demand pull, which can be controlled through tight monetary policy, instead it is a supply side phenomenon.
FPCCI's ex-President Tanvir Ahmed Sheikh further said that Pakistan had the highest cost of borrowing in the world. The rate of interest for long-term financing in Pakistan was 13 per cent, 7.6 percent in India, 6.6 percent in Indonesia, 2.3 percent in Malaysia, 1.4 percent in Japan, 3.9 percent in UK.
He said that the rate of interest for short-term financing was 12 per cent in Pakistan, 3 per cent in India, 7 per cent in Indonesia, 2 per cent in Malaysia, 0.4 per cent in Japan and 0.9 per cent in UK, however, he welcomed cut in discount rate by 100 bps (1%), adding that further 50 to 100 bps cut in the discount rates should be made.
He explained that when the inflation was reduced to 11.17% and KIBOR trading 12% below the policy rate, the industry was expecting at least a cut of 150 to 200 bps. He appreciated the introduction of new Reverse repo money supply corridor with the difference of 300 bps a management system to monitor the liquidity in the market like India and Saudi Arabia and said it would enhance confidence of the banks to take position.
He also appreciated the increase in the frequency monetary policy decisions from four times to six times, enabling to take correct decisions regarding the money supply.