Business community has expressed serious concern over minor reduction in basic policy discount rate in monetary policy announced by the State Bank of Pakistan which seems to be totally against the global wisdom under the current extreme circumstances.
They said that the present monetary policy is not an expansionary policy in its contents.
Although the State Bank has announced a decline in basic policy discount rate by 75 basis points, the rate of interest in Pakistan will remain the highest in the world.
The President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Mian Anjum Nisar, said that the SBP decision seems totally against the global wisdom under prevailing drastic conditions of the life threatening disease caused by COVID-19.
Global think tanks and large number of countries are supporting economic activities by introducing ease of doing business and market expansion policies, while SBP ignoring the current devastating conditions around the world that would affect Pakistan's exports.
The majority of the leading economist were optimistic about the positive move of policy rate cuts about 300 bps to spur economic activities.
Mian Anjum Nisar said that there were strong reasons for lowering interest rates to a single digit as oil prices are continuously declining, inflation is also going down hence significant cut in the interest rate has become essential which is the demand of the current global situation as well as protection of the national trade and industry.
The president of the FPCCI also apprehended decline in Pakistan's foreign trade as Europe was facing adverse conditions and the countries where our export went were under the threat of the coronavirus.
America was also under the threat of the coronavirus hence Pakistan's textile and other exports may suffer.
He further said that we may loss opportunity to avail market penetration for Pakistani products created due to crises in our competitor countries.
In the present situation like other nations Pakistan should also adopt measures to support business activities. The German government was considering an emergency fund aimed at helping small- and medium-size companies.
Mian Anjum Nisar said that it's time for policymakers, central banks and economists to actively consider more radical solutions. We need to build confidence among people, businesses and industry to carry on industrial production to save millions of people's jobs and their families.
The government should also seek moratorium and negotiate with international donor agencies to support financially as the country has limited resources. Government should also consider reducing cost of doing business through availability of all kinds of industrial input at reduced prices.
The SBP should adopt policies that support economic activities at this time of crises and review its monetary policy by lowering minimum 300 bps according to the market demand.
The Pakistan Business Council (PBC) expressed disappointment with the weak response by the State Bank of Pakistan's 75 basis point reduction in policy rate is too little too late.
"As central banks the world over launch unprecedented economic stimuli, slash borrowing cost and inject billions of dollars of liquidity into the markets, the Monetary Policy Committee's 75 bps cut in the Policy Rate is too little (and too late) to make any significant difference to Pakistan's economy.
"The MPC continues to justify the high policy rate by reference to a CPI reading which it acknowledges is heavily impacted by supply side issues. The monetary policy cannot fix supply disruption of tomatoes, flour, sugar or any other essential commodity. So, neither is it the right tool, nor is 12.5% Policy Rate appropriate for a non-cost push inflation of just 5.5%.
In the MPC statement today, we find no mention of the flight of hot money - about $1 billion of the $3 billion which came into 3-12 month Treasury Bills has now left our shores because of the coronavirus scare - and it would have even if the Policy Rate had been higher. Continuing to hold local industry hostage to high borrowing rates in a bid to retain foreign debt comes at the cost of jobs, curtailment of profit and loss of tax revenue.
"Pakistan's investment rate is half that of its South Asian neighbours.
The country has been deindustrializing, with manufacturing contributing a declining percentage of GDP each year.
"Surprisingly, the MPC takes the growth of Large Scale Manufacturing in a single month of December as evidence of revival in manufacturing. That said, the new temporary economic refinancing facility for 10 years at 7 percent per annum for new projects is to be welcomed. However, what about investment in plant and machinery by existing non-export businesses? A 14 percent plus per annum cost based on a Policy Rate of 12.5 percent would deter most.
"In our call yesterday for an urgent economic stimulus, we had highlighted the role that the Government should play in renegotiating the tax and fiscal targets with the IMF; release the funds that belong to business and which the government has been withholding in a bid to balance its deficit; reform the processes to prevent the buildup of these obligations and find ways to incentivize business to maintain employment. In a period of crises, it is all the more important that the monetary and the fiscal policies work together to alleviate economic stress.
"We would remind the State Bank that the 100% LC margin on industrial inputs needs to be withdrawn to revive production and that the MPC should be meeting more frequently than present to respond swiftly to the challenges that are likely to face the economy due to the corona virus crisis.
"The US Fed meets even on a Sunday and whenever the need arises. When the MPC meets next and sooner than two months from now, we hope that it takes a more objective view of demand-pull inflation, unfettered by the need to attract short-term fragile foreign investment in debt. The call would then be for a further 200 bps cut in the Policy Rate down to 10.5%."
President, Lasbela Chamber of Commerce and Industry (LCCI) Ismail Suttar said that the new SBP Monetary Policy is shortsighted, misconceived and that it has put the question mark on the top management at State Bank of Pakistan.
Ismail says, "The State Bank has announced a new refinancing scheme and hopes that a 7 percent maximum end-user rate for 10 years will reinvigorate the industrial base but with consistent market failures, this attempt is poised to reverberate with the producers and instead add to the additional carnage of the internal environment."
The President LCCI opined that when export-led growth is the target the manufacturers should be the first ones to be incentivized, which otherwise could also be tackled using other innovative financial measures.
"We are talking about saving the existing industry from crisis and the State Bank thinks that new industries will be set up at 7 percent.
It is the own risky bet of the SBP of putting the country in the hot money trap by going to the IMF in the first place and blatantly ignoring the plight of SMEs and business community," Ismail said.
Further, he noticed that the Current Account Deficit is massively down, reserves just started to swell, oil prices have nose-dived and the masses are begging for fiscal support to meet their consumption needs amid a high on-average inflation rate.
He proposed that keeping in view the fact that the businesses have taken the biggest revenue slump in decades with domestic markets shuttering, the SBP must redraft its monetary policy carrying interest cut as much as 3.5 to 4.00 percent similar to the one exercised by Turkey that has cut the reverse repo rate by more than expected.
President Korangi Association of Trade & Industry (KATI) Sheikh Umer Rehan termed mere decrease in Interest rate by State Bank of Pakistan as disappointing and unhelpful for industry.
Sheikh Umer Rehan and Head of KATI's standing committee on economic reforms Senator Abdul Haseeb Khan demanded at least 3 to 5 pc reduction in interest rates as the economic fallout hit globally due to the coronavirus breakout.
Sheikh Umer Rehan noted that as historic economic fallout had hit the world economy, industry in Pakistan would also suffer the brunt which is already struggling due to higher cost of production and other financial woes due to the highest interest rates in country. He said industrial sector was expecting a relief and significant change in interest rates in monetary policy.
"But the mere reduction of only 0.75 pc proved to be a sheer disappointment rather than helping the sector," he added.
He urged Prime Minister Imran Khan to take immediate notice of the situation and direct to bring policy rates at least less than 10 pc.
Senator Abdul Haseeb Khan said that with current policy rates, even after reduction of 75 basis points, industry could not survive and it could cost a heavy price in terms of deindustrialization and unemployment in the country.
Economic & Financial Analyst, Ateeq Ur Rehman, said that Monetary Policy Committee (MPC) decided to cut the policy rate by 75 bps to 12.50 percent that is from 13.25 basis points to 12.50 basis points.
This will not serve the purpose of anticipating chances of ease of business and access to finance for encouraging the local manufacturing industry to support the measures in maintaining rising global export orders in the wake of coronavirus pandemic.
He said many countries have already lowered their interest rates to resolve credit issues of their respective industries.
Ateeq said that this is an excellent move but it would have been more lucrative if the rates would have been 5.0 percent fixed for 15 years owing to prevailing difficult economic conditions and payback complications.
Moreover the SBP announcement for a Refinance Facility for combating coronavirus and its Shariah compliant version to support hospitals and medical centers in combating the spread of this fatal disease, the SBP will refinance banks to provide financing at maximum end-user rate of 3 percent for 5 years for the purchase of equipment to detect, contain and treat the coronavirus.