KARACHI- President Site Association of Industry, Abdul Rasheed, has rejected a further 100 bps rise in interest rates calling for its immediate reversal especially when the industry is facing forced closures due to a severe gas shortage.
In a statement, the SAI president said that q free-floating exchange rate works as a shock absorber that discourages imports in a timely manner thereby keeping the current account in check. SBP in their monetary policy statement has stated that inflation is due to supply-side issues further fuelled by higher commodity prices and up to 70% of the current account deficit is due to rising global commodity prices.
Abdul Rasheed demanded reversing the rate to 7% as industries are already facing severe losses due to the gas closure industry, a crisis of the magnitude of COVID 19. “With industries facing huge challenges due to closure of gas, one-sided minimum wage notification, an interest rate hike could well prove to be the last nail in the coffin for troubled industrialists.”
Terming the interest rate hike detrimental for Pakistan’s economy especially for the Government of Pakistan, he said, “An increase in the interest rate of 275 basis points since September would result in higher fiscal deficit by increasing interest expense by PKR 1 trillion on 26trillion domestic debt while reducing direct taxes due to lower profitability of companies on account of higher interest expense”, he concludes that keeping raising interest rate at 7% was the main reason that GOP avoided twin deficits having better performance on the fiscal front despite the deteriorating external position.
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 USA and the UK. Terming the reversal of policy rate down to 7% critical for both the private sector and GOP, Abdul Rashid Said, “it is imperative that SBP reverts its decision of raising the policy rates as it is detrimental to both the private sector as well the GOP without aiding at all in improving the current account position.”
