The Lahore Chamber of Commerce and Industry, while expressing its surprise over the State Bank's decision to further enhance the discount rate from 13.5 percent to 14 percent, has said, it would hit the overall economy hard as the availability of equity to the business community has been made dearer with one stroke of pen.
The LCCI President Shahzad Ali Malik in a statement on Monday said the State Bank has adopted a wrong way of dealing with inflation. The 50 basis points increase in discount rate would jack up the cost of doing business that would ultimately hit the economic growth that has just started showing signs of recovery, he added.
The LCCI chief said the State Bank of Pakistan decision would not help curtail fiscal deficit or in controlling inflation as it had not served the purpose in the past rather it would create troubles for the new investors. He said that at this point in time when both the trade and industry were in dire need of some special package, the increase in interest rate would prove only counterproductive to economic recovery. The cost of doing business in Pakistan is already highest in the region, he maintained. Malik said that the business community had been demanding lowering of interest rate for the sake of new investments that were going down with every passing day.
"It would have been a great service to the country in general and to the economy in particular if the State Bank of Pakistan had taken the otherwise decision." The move is totally against the expectations on business doing community as the ground has been set for cost-push inflation, he added.
He said that Pakistani businessmen need cheaper money as on the one hand it would facilitate him while on the other it would help ensure economic growth, which is at the moment much below the target. The State Bank should focus on reducing the banking spread to control the inflation instead of jacking up the discount rate by 50 basis points, he said.
He said that the Lahore Chamber had been calling for increase in tax-to-GDP ratio and cut in expenditure but its demands always fall in deaf ears and the policy makers always come up with such decision that hit government credibility. The LCCI President urged the Prime Minister Yousuf Raza Gilani to look into the issue as the increase in policy rate was likely to compel more industries and trading houses to close down their businesses.