Industry terms rate cut inadequate

Wednesday, November 25, 2009
By our correspondent

LAHORE: Traders and industrialists have asked the State Bank to formulate its monetary policy on ground realities, instead of keeping interest rate high on fears of inflation in the future.

They said the central bank could enhance rates whenever inflation increases.

Responding to the announcement of monetary policy by the State Bank on Tuesday, they termed the reduction in policy rate by half per cent inadequate, and advised the central bank to look at interest rates in neighbouring countries.

Pakistan Carpet Manufacturers and Exporters Association Chairman Pervaiz Hanif said it is true that countries like India, China, South Korea and Thailand are contemplating to increase their policy rate on fears of inflation, but these countries have low interest rates of 1-3.75 per cent, while inflation in these countries has increased to 7-9 per cent.

He said in Pakistan the policy rate is two per cent higher than current inflation, which is stifling the economy.

Lahore Chamber of Commerce and Industry President, Zafar Iqbal, while commenting on SBP’s decision to cut discount rate by 50 basis points from 13 per cent to 12.5 per cent, said it is not enough and there is a dire need to bring it down to single digit.

He said the economy was facing an unprecedented crisis and the rate cut was insignificant. He expressed his surprise, saying that despite a sufficient fall in inflation, which was 8.9 per cent for the whole year, SBP kept a tight monetary policy.

Pakistan Industrial Association and Traders Front Chairman Irfan Qaiser said if the government wants an industrial revolution and cuts in poverty and unemployment, the State Bank would have to bring the interest rate to single digit.

He said there is no logic in keeping the interest rate high on fears of future inflation. “It is the duty of the central bank to take action on ground realities and not on assumption or perceptions.”