KARACHI: The Site Association of Industry (SAI) has rejected another 100 basis points rise in the interest rates and called for its immediate reversal, especially when the industry is facing forced closures due to a severe gas shortage, a statement said.
SAI president Abdul Rasheed said that free-float of the exchange rate works as a shock absorber, which discourages imports in a timely manner; thereby, keeping the current account in check.
The State Bank of Pakistan (SBP) in its monetary policy statement have said that inflation is due to supply side issues further fuelled by higher commodity prices and up to 70 per cent of the current account deficit is due to the rising global commodity prices.
Rasheed demanded reversing the rate to 7 per cent, as industries were already facing severe losses due to the gas closure and a crisis of the magnitude of the Covid-19.
“With industries facing huge challenges due to the closure of gas, one-sided minimum wage notification and an interest rate hike could well prove to be the last nail in the coffin for the troubled industrialists.”
Terming the interest rate hike detrimental for Pakistan’s economy, especially for the government, he said: “An increase in the interest rate of 275 basis points since September would result in higher fiscal deficit by increasing the interest expense by Rs1 trillion on Rs26 trillion domestic debt, while reducing the direct taxes due to lower profitability of companies on account of higher interest expense,” he said.
The SAI president discarded the idea of keeping real interest rates mildly positive, as most of the countries are maintaining steep negative real interest rates, including the US and the UK.
Terming the reversal of policy rate down to 7 per cent critical for both the private sector and the government, Rashid said: “It is imperative that the SBP reverts its decision of raising the policy rates, as it is detrimental to both the private sector, as well as the government without aiding at all in improving the current account position.”
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