ISLAMABAD: The Islamabad Chamber of Small Traders (ICST) on Sunday said the recently announced tight monetary policy will provide some breathing space to the cash-strapped government but make life difficult for the masses and the business community.
The second upward revision in the policy rate indicates the challenges the economy is facing since some time, it said.
Increased interest rates will not improve the confidence of investors or strengthen local currency but it will subdue demand which will reduce the pace of erosion of forex reserves, said Patron Islamabad Chamber of Small Traders Shahid Rasheed Butt.
The hike will also hit mega projects, manufacturing and the Gross Domestic Product (GDP) while the forex reserves which are currently at the level of $10 billion and the rupee which has been eroded by 9.3 per cent in five months will remain under pressure, he added.
Shahid Rasheed Butt said that the government will need billions of dollars to avoid a balance of payments crisis as the twin deficits are getting out of control, nullifying gains made in exports and remittances.
Hike in oil prices and unabated imports will increase the import bill and the deficit which needs to be tackled by economic managers.
The business community on Saturday rejected the State Bank of Pakistan’s (SBPs) decision of increasing its policy rate by 50 basis points to 6.5 per cent, lifting it to a level of three-year high.
He noted that some optimistic business circles were expecting a reduction in interest rates to control the adverse effects of the recession but the upward revision in lending rate has disappointed them.
It would result in high inflation and increase the cost of production that would further paralyse the industrial sector, he said.
Deficits continue to threaten the economy while clouds have emerged on the economic horizon and in this scenario the growth target of 6.2 per cent for the next year seems difficult.
