The Multan Chamber of Commerce and Industry (MCCI) has said that the decision of the State Bank of Pakistan (SBP) to enhance the discount rate to 14 percent would hit the economy hard. MCCI President Shahid Naseem Khokhar said that the central bank had adopted a wrong way of dealing with inflation. He said that the 50 basis points increase in discount rate would jack up the cost of doing business, which would ultimately hit the economic growth.
He said that this decision would not help curtail fiscal deficit or control inflation, but it would create problems for new investors. He said trade and industry were in dire need of some special package. He said that the cost of doing business in Pakistan was already the highest in the region. Khokhar said that the business community had been demanding lowering of interest rate for the sake of new investments, which 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 reduced the interest rates. The ground has been set for cost-push inflation." Khokhar said that Pakistani businessmen needed cheaper money to propel economic growth. He said that the State Bank should focus on reducing the banking spread to control the inflation instead of jacking up the discount rate. He said that the MCCI had been calling for increase in tax-to-GDP ratio and cut in expenditure but its demands always fell on deaf ears.
He urged 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. Increase in the discount rate by 50 basis points by the central bank is termed it as last nail in the collapsing industry. He strongly opposed the SBP's monetary policy - which is raising concerns over the closure of the industry by not sustaining the interest rate and the continuous negligence of the suggestions from the business community.
It is important to mention that the SBP has announced an increase in its key policy rate to 14 percent from 13.5 percent - its third consecutive hike in six months. Khokhar said that we have always opposed hikes in interest rate, as the increased interest rate has never helped to control inflation and has not been able to stabilise rupee/dollar exchange parity. He was of the view that the existing interest rate was not sustainable for the industry and this recent hike in interest rate would further create hurdles in the way of industry.
He was of the view that central bank has no option left except to increase discount rates, as government borrowings from banks have increased tremendously during the last year. The government borrowing was restricted to Rs 238 billion till June 2010 - which jumped to massive Rs 266 billion by November 2010. He demanded the government reduce its expenditures and privities public sector entities like PIA, PSM, and Railways - which are making losses of more than Rs 300 billion per annum.
Shahid Naseem Khokhar said that hike in interest rate may increase unemployment problems in the country. Expressing his disappointment over monetary policy announcement said that in a situation when country is in the grip uncertainty, this increase is not going to help trade and industry. "Before the implementation of RGST decisions like this will prove the last nail in the collapsing economy," he lamented. With the continuation of these irrational Pakistan was on its way to become one of the most expensive countries of the world, as already cost of doing business is more than 35 percent in Pakistan as compared to other regional countries.