Raising interest rate by 300 basis points (bps) to 20 percent by State Bank of Pakistan is highly unbelievable. A rise in interest rate was expected due to rising inflation, the hike by 300 basis points is highly painful for the businesses in particular nevertheless.

The yesterday’s rate hike is said to be the highest level since 1996. The central bank has premised its decision on what is says “deterioration in inflation” outlook and its expectation amid recent external and fiscal adjustments.

The SBP, in my view, has lost the sight of more than pitiable condition of the majority of businesses that are already struggling to attain even lower levels of outputs due to curbs on imports.

The question is how any business model can work successfully in an environment that is strongly characterised by restrictions on LCs and interest rate as high as 20 percent.

Little do our policymakers realise the gravity of the situation that is surely fraught with job losses on a massive or even unprecedented scale and the consequent social unrest across the country.

The SBP, in my view, revisit its 300 basis points raise decision immediately. The hike must not go beyond 100 basis points.

Shehnaz Hameed (Karachi)

Copyright Business Recorder, 2023