Economists and industrialists have termed the 75 basis points (bps) reduction in policy rate by the State Bank of Pakistan 'nominal' and a 'joke' and not an appropriate response to deal with the coronavirus challenge and domestic ground realities.
Economists and the business community appeared to be on the same page in relation to the discount rate while talking to BR maintaining that the coronavirus pandemic has triggered a slowdown in the global economy and only higher, bigger interest rate cut - of up at least to 200 bps - would have provided the necessary stimulus to the economy.
The large-scale manufacturing (LSM) sector which is impacted the most by a high interest rate registered a negative growth of 3.4 percent in July-January of current fiscal year, and the nominal cut in policy rate by the SBP may further slow the economy down.
Former Advisor to Finance Ministry, Dr Ashfaq Hassan Khan said the nominal reduction in policy rate is a joke and an insult to the nation. It gives the impression that the government and its institutions are not serious in addressing the economic challenges in the aftermath of the coronavirus outbreak in the country.
He said that the policy statement appears to reflect be a business as usual approach which is not in line with the decisions taken by the central banks around the world. Egypt's central bank cut the policy rate by 300 bps and it is the same country where Governor SBP Reza Baqir served as IMF representative, while Turkey reduced its policy rate by 100 bps to 9.75 percent, where inflation rate was 12.75 percent, or in other words Turkey's central bank has brought the rate down to negative real interest rate, he said. Most of the European countries and the US have brought the policy rate to zero or near to zero, Khan added.
Either the central banks governors around the world should learn the art of policy making from Governor SBP or otherwise the latter needs to learn from the rest of the world, he added. Chairman Council of Textile Association (CTA), Zubair Motiwala said that the nominal cut in policy rate is of no help to industry which is already facing liquidity crunch due to stuck up refunds.
"The government should cut the discount rate by 4 percent; cutting it by 75 bps is of no use to industry and will not solve their problems," said Motiwala, adding that the government should release the remaining tax refunds and export rebates to provide immediate liquidity to exporters.
The Rawalpindi Chamber of Commerce and Industry (RCCI) has termed the policy rate cut "discouraging" and urged the government to announce a special economic aid package keeping in view the threat of a coronavirus outbreak.
"The coronavirus pandemic had triggered a slowdown in the economy all over the world. A bigger interest rate cut would have provided stimulus to the economy and it was a great opportunity to send a positive message to the domestic financial market in restoring confidence," said RCCI President Saboor Malik.