FPCCI concerns over the high policy rate maintained by SBP

Mian Anjum Nisar, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), expressed serious concern over the SBP unchanged policy rate which is at the highest in the region and in this state of monetary economy industry cannot survive and to compete in the international market is absolutely impossible. Policy rate in India is 5.15 percent, China 4.35 percent, Sri Lanka 8.0 percent, Malaysia 3.0 percent, Thailand 1.25 percent, and Indonesia 6.5 percent while policy rate in Pakistan is 13.25 percent. Economists have consensus on the use of expansionary monetary policy in the state of low economic growth and reduction in GDP to control over the damaging effects of low growth on employment and investment.

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President FPCCI said that the State Bank of Pakistan is continuously following contractionary monetary policy and kept the policy rate at 13.25 percent while on the other side the government is not providing input material to the industry such as energy at an affordable level. Industry is also facing high cost of doing business in Pakistan due to infrastructure and policy bottlenecks. Continued monetary tightening has constrained private sector cash flows and Non-performing loans are rising. NPLs have increased by more than twenty three percent since it has adopted tight monetary policy.

He stated that the SBP keep the high interest rate due to inflationary outlook while in Pakistan the inflation is cost push that cannot be controlled through contractionary monetary policy. The major cause of rising inflation in the country is increase in the prices of industrial inputs and shortage of essential items of daily necessity. Actually, first the high cost of electricity, gas and petroleum products fuels the inflation in Pakistan and to control over it SBP follows tight monetary policy.

Mian Anjum Nisar President FPCCI urged the SBP to reduce the policy rate in order to increase the demand of private sector credit which will ultimately help in new industrialization and economic growth.