Business community rejects 100bps hike in interest rates

KARACHI: Business community has lashed out at the State Bank of Pakistan (SBP) for jacking up key interest rate by 100 basis points to 13.25 percent for the next two months on the excuse of dealing with emerging inflationary pressures in the economy.

Advisor to President Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Mazhar Ali Nasir said the actual lending rates would surge to 18-19 percent, which would not be viable for industrialists.

“Cost of doing business is already high, and this increase in the interest rates would discourage industrialization. I believe there would be no expansion in the short term.”

Nasir said investors would now pull their money from productive avenues and it would go to banks, which will be offering around 11-12 percent return. “However, we believe foreign investors would not be discourages as lending rates are much lower in the rest of the world.”

Businessmen are of the view that the central bank had adopted a wrong strategy to deal with inflation, as increase in the discount rate would raise the cost of doing business that would ultimately hit economic growth.

President Karachi Chamber of Commerce and Industry (KCCI) Junaid Ismail Makda said there would be no loan-taking from the banks as the lending rates would be around 19 percent, which is not viable for any industry in Pakistan.

“We oppose this International Monetary Fund (IMF) dictated increase in interest rates. The central bank is made autonomous under the umbrella of IMF and not under the umbrella of the constitution.”

Makda said industrialists had already stayed their expansion plans and with this increase, there will be absolutely no industrial expansion. “We hope things will improve on FATF front after PM Imran Khan’s visit to USA.”

Ahsan Mehanti, an analyst at Arif Habib Commodities, said the increase in interest rate was in line with the consensus expectations, and the market had already discounted its impact in the last few days.

“We don’t see any significant impact on the equity market, and we don’t see any major outflows as the bourse is already quite under-valued given political instability and revision in the National Savings rates.”

However, he said, higher interest rates would impact profitability of leveraged corporate sector given dismal economic outlook, which would be reflected in the upcoming corporate earnings seasons.

Mehanti said market was betting that this would be the last upward revision in the interest rates as inflation is set to ease, and resultantly central bank’s monetary policy stance would be eased.

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