The recent decision of the State Bank of Pakistan (SBP) to increase the interest rate has received widespread condemnation from the business community and political circles.
Islamabad Chamber of Commerce & Industry (ICCI) President Shakeel Munir criticised the SBP’s decision to make a steep hike of 2.5 percent in benchmark interest rate and taking it to 12.25 percent. This harsh measure would badly affect the growth of business activities and hurt exports, said Munir.
In a meeting of the business community of federal capital here on Saturday, the ICCI president said the policy interest rate was 4pc in India, 4.75pc in Bangladesh, 3.7pc in China, 0.5pc in Thailand and 0.75pc in Hong Kong, but it has been increased to 12.25pc in Pakistan, which was almost the highest in the region.
He warned that this massive hike in the policy interest rate would adversely affect all sectors of the economy and lead to further downfall in the trade and industrial activities.
He urged that the SBP should immediately revisit and withdraw this irrational increase as it would prove disastrous for the economy.
Meanwhile, in an interview to a private channel, SBP Governor Dr Reza Baqir said the recent drop in foreign exchange reserves was worrisome, although a rollover of foreign loans is expected to improve the situation soon.
Other recent measures by the central bank will also help stop the worsening of foreign exchange reserves, he added.
The SBP governor further said the decline in reserves was mainly due to debt servicing and the payment with regards to the settlement of an international arbitration award.
The ICCI president said that the economy was already facing many great challenges including rising inflation, sharp currency devaluation, unbearable foreign debt, depleting foreign exchange reserves, growing fiscal imbalances and dwindling foreign direct investments.
He urged the SBP to reconsider its decision and reduce the interest rate to make credit cost affordable for business class.
The ICCI members noted that the even in the past, governments used the policy of increasing interest rate to control inflation, but this policy has failed miserably.
Meanwhile, former finance minister and the PML-N leader Miftah Ismail said the hike in the interest rate was due to the failed economic policies of the Imran Khan government.
“We are witnessing a slide in foreign exchange reserves and constant downward positioning of the rupee against the dollar,” he said.