The State Bank of Pakistan (SBP) Governor, Reza Baqir, on Tuesday said that the bank was considering cutting down policy rate following a decline in inflation. While briefing a meeting of the Public Accounts Committee (PAC), which was held here under the chairmanship of Rana Tanveer Hussian, Baqir said that increase in the rate of inflation was a result of disruption in supply chain as well as depreciation of rupee against the US dollar.
The interest rate would also reciprocate with declining inflation and would also go down in the coming days, he added. "We are hoping for an improvement in the situation ahead as the situation has witnessed a turnaround from the past," the SBP governor said, adding that currently the foreign reserves were witnessing a surge along with stability in the value of rupee.
He said that at present $12.5 billion dollars were in the State Bank of which $3 billion dollars were investment of hot money. Baqir said that now no one could predict an increase in dollar rate. "Our current account deficit and financial debts have also witnessed a decline," he said and added that the number of challenges faced by the economy had reduced.
Baqir said that with the current improving situation, no one could say that the country was going towards default. Responding to various questions asked by former speaker of National Assembly, Ayaz Sadiq, the SBP governor said that the inflation rate had started declining, especially food inflation, and savings should be increased.
He added that interest rates decision was linked with expected inflation. If inflation is declining, the SBP will reduce interest rates. "We are trying to build confidence of the investors in our system both locally and globally. Real interest rate at present is not too high. The USA, the UAE and the UK investment in hot money and other details are available on SBP website."
Talking about the Government of Pakistan's borrowing from the central bank, the governor said that the bank was printing more notes, but the federal government had not borrowed from the SBP within past one year. The governor SBP avoided answering the question about his salary, which was asked by Pakistan Tehreek-e-Insaf (PTI) Member of National Assembly, Noor Alam Khan.
Responding to questions regarding serving the interests of the savers and borrowers, the SBP governor stated that despite lowest interest rates in the past in the country, the investors did not massively invest. For sustainable economic growth, private investment is the need of the hour.
He said that the SBP was providing significant incentives to the exporters if they were charged only six percent interest rate on long-term. The SBP has increased loan limits for exporters and those installing industrial units owing to the devaluation of the Pakistan rupee.
He said that Pakistan was receiving global orders for various goods and services following coronavirus outbreak in China, adding that Pakistan was also at present facing serious supply of goods challenges from China, which was worse-hit by coronavirus. Sherry Rehman said that capital control was also an option and the SBP and the Finance Ministry should also consider the option.
Responding to Senator Sherry Rehman, the SBP governor said that recently large scale manufacturing (LSM) of the country had posted an increase, which in coming months would further improve but in countries such as Pakistan, capital controls such as instruments were not working.
He said that now machinery imports had jumped up, cement consumption was increasing and the country was witnessing improvement in markets. "The IMF revised position on capital controls, we are not in a position to consider capital control but magnitude of our economy is too small to consider capital control," he further said. Banks and microfinance banks are offering saving schemes.
The IMF is a partner in our economic system. Noor Alam Khan asked the SBP governor to inform about the hot money investors. "What measures have you taken for the improvement of the economy and also tell us about your salary?" he asked.
Ayaz Sadiq asked, "Why inflation is not being controlled? Why the SBP is emphasizing on building up reserves and not adopting industrial support policies?" The panel also discussed the matter of One Constitution Avenue apartments.
Secretary of Interior and chairman of the Capital Development Authority (CDA), while briefing the panel, said that the matter was pending in court. They said that the project started in 2005, and multi-billion rupees of investors were struck in the project since than. The case is also pending in NAB, referred in 2014-2015.
The project was approved when Kamran Lashari was chairman of CDA, the officials informed the panel. They further said that the case was forwarded to the National Accountability Bureau in 2014, but the bureau had yet not come up with any reference against the accused persons.
The Supreme Court imposed Rs 17 billion fine on the developer. One year had passed but the builder did not deposit the first installment of Rs 2.4 billion, and bank guarantee was also not submitted. The panel asked the chairman of CDA why the civic body failed to implement the Supreme Court judgment.
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