Interest rate hike to slowdown economy SBP move to deprive private sector of credit Increasing production, exports will be a challenge.

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(May 22, 2019)

President Pakistan Businessmen and Intellectuals Forum (PBIF), President All Karachi Industrial Alliance (AKIA), Senior Vice Chairman of the Businessmen Panel of FPCCI and former provincial minister, Mian Zahid Hussain on Wednesday said recently announced monetary policy is too aggressive. An interest rate hike of 1.5 percent by the central bank is over and below the expectations of the experts and the business community but it will choke the economic growth at this critical juncture, he said.

Talking to the business community, the veteran business leader said that the monetary policy after a poorly negotiated deal with the IMF, will hit manufacturing, agriculture, exports and jobs while it will deprive the private sector of much-needed credit resulting in defaults and litigation. He said that another interest rate hike is expected which will be disastrous for the economy. He added that private banks will find it attractive to lend to the government which is risk-free while the private sector will be able to get loans at 15 to 16 percent interest which is unsustainable.

The former minister noted that that business community was already facing problems like increased cost of doing business, inflation, devaluation etc. and now the interest rate hike will add to their difficulties.

Mian Zahid Hussain said that the government will also come under pressure as it will not be able to seek loans from the central bank and borrowing from commercial banks would be a costly option which will hurt all other sectors. Steel, cement, fertilizer and other sectors will lose while the banking sector will thrive on the high policy rates and they will ignore the private sector due to risks associated with it.

The business leader noted that interest rates have touched eight-year high to 12.25 percent which will not only hit production and make increasing exports impossible. The development will not only discourage industrial sector but also hit the new investments as inflation would grow in the backdrop of depreciation of local currency against the dollar, increase in petroleum prices in the international and domestic markets, and a further increase in power and gas tariffs in the near future which will increase poverty, he warned.

 

 

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