Interest rate reduction is complex because of inflation. The increased gas tariff is causing inflation to rise. Transport expenses dropped due to cheaper oil.

(December-04-2023)

Chairman of National Business Group Pakistan, President Pakistan Businessmen and Intellectuals Forum, All Karachi Industrial Alliance, and former provincial minister Mian Zahid Hussain said on Monday that the increase in inflation is a significant obstacle in reducing the interest rate on the part of the Central Bank. 

Last month, headline inflation rose by 2.7 percent to 29.2 percent and the price of food items has also increased in the previous month while the cost of many other things has decreased. 

Talking to the business community, the veteran business leader said that the main reason for inflation is the sharp rise in gas prices. Inflation is estimated to be 25% in the next financial year due to a 194% increase in gas prices, with further hikes likely. 

The business leader said that economic experts believed that the Central Bank would reduce the interest rate soon, but it seems complicated after the release of inflation data. 

There will be no policy relaxation shortly as inflation in urban areas is more than that of rural areas due to increased gas prices.

Inflation in urban areas has increased more than in rural areas after an extended period because the cost of gas does not affect rural areas, but urban areas are affected. 

Mian Zahid Hussain further said that the drop in oil prices has somewhat reduced the cost of transport, which is welcome. 

He said that inflation will start to increase rapidly if the rupee depreciates. Some Western institutions have estimated the dollar’s value to reach 350 rupees by the end of 2024, which is alarming.

The currency market has been controlled with difficulty, and if speculators are not kept under close watch, they will start playing the old game again for their nefarious interests.  

The government should initiate a new IMF program as soon as possible, make every effort to increase remittances, and take steps to bring the budget deficit under control, he demanded.