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Businesses advise SBP for accommodative monetary policy stance

Businesses advise SBP for accommodative monetary policy stance

Businesses advise SBP for accommodative monetary policy stance

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KARACHI: The business community has suggested the State Bank of Pakistan (SBP) adopt an accommodative monetary policy stance instead of further raising it.

In a statement on Saturday, the Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Businessmen Panel (BMP) warned the central bank of any aggressive jump in the key policy rate in the upcoming monetary policy, as the recent stock market crash is the outcome of the government’s wrong economic policies.

The stock market investors were stuck in a selling frenzy over economic fallout from the country’s record trade deficit and the fear of another discount rate hike, FPCCI’s Businessmen Panel chairman Mian Anjum Nisar said.

Demanding competitive interest rates at regional countries’ level, he said, the SBP’s stance of keeping the monetary policy rate at 7 per cent was already high, compared with the markup rate of China, India and Bangladesh.

Yet, the central bank jacked up the key policy rate by another 150 basis points to 8.75 per cent in the last monetary policy, leading to the crash of the stock market, which will remain bearish until the next policy announcement.

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The hike in the interest rate by 125 basis points by the State Bank during the auction of T-bills has added to the problems of the investors’. In addition, there is a fear of further hike in the interest rate in the monetary policy, scheduled to be announced on December 14 because of which there is constant selling pressure in the market, he added.

The expectation of further monetary tightening and an expected all-time high current account deficit had sparked panic selling across-the-board, leading to the capital market’s massive tragedy.

The BMP chairman asked the SBP governor to fulfill his commitment of maintaining an accommodative monetary stance in the near- and long-term to support the rare recovery, amid uncertain Omicron coronavirus variant worries and challenges.

He stressed the need for reduction in the discount rate, arguing that low key policy rate is essential to make the Pakistani exports sector, as well as the local industry competitive.

Nisar said that the achievements in exports and stabilisation of the economy through the monetary policy measures now required to sustain again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through lower markup rate.

BMP presidential candidate for the FPCCI elections Irfan Iqbal Sheikh said that most economic activity data and indicators of consumer and business sentiments have shown continued improvement. The trade and industry need continued support from the government in the form of lower interest rates, amid such external shocks, he suggested.

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He also said the manufacturing recovery is also becoming more broad-based, with 12 of the 15 sub-sectors registering a positive growth and employment beginning to recover.

Irfan Iqbal Sheikh, the former LCCI president, also demanded the immediate reduction in the electricity tariff, especially for the Small and Medium Enterprises (SMEs) as a first step towards a cut in the production cost, while the second and vital step towards this direction would be bringing discount rate to the regional level with a view to provide level-playing field, especially to the export industry.

The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandise in the country; following FTAs with several countries, he added.

Appreciating the central bank’s role in sustaining economic growth through supporting trade and industry, he said, the reduction in interest rate would be a vital relief to the business community.

Nisar also said that after the coronavirus devastation, Pakistan should take advantage of those export orders, which were cancelled by other regional countries.

For this, the government will have to reduce the production cost of the industries to avail this offer by the international buyers.

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The FPCCI former president said the central bank should announce an initiative related to loans for the Small and Medium Enterprises (SMEs), as the sector has to show collateral to banks, which are always reluctant to offer them concessional credit.

The stock exchange has not crashed rather the government’s economic steps it had taken had crashed. The stock exchange falling by over 2,000 points is a sign of investor’s distrust in the government’s economic policies, he said.

The BMP again warns that the trade deficit and further increase in the interest rates will kill the economy. This is the result of taking foreign loans and the continuous rupee depreciation and calling for putting an end to this destruction.

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