Textile sector, economists ‘disappointed’ with SBP’s new interest rate

LAHORE: Textile exporters and economists on Tuesday rejected the 75-basis points cut in policy rate announced earlier today by the State Bank of Pakistan (SBP).

Talking to this scribe, All Pakistan Textile Mills Association (APTMA) Punjab Chairman Adil Bashir said that inventories have started to build up due to cancellation/delays in shipments, adding that the export-oriented sector cannot bear such exorbitant interest rates.

“The State Bank of Pakistan should waive interest rates for three months and freeze all repayments till coronavirus situation improves,” Bashir stated. “This meagre reduction in interest rates will lead to large scale closures if inventories don’t move. In one word, disappointed.”

Agreeing with him, APTMA Group Leader Gohar Ijaz said that it is a huge mistake on the part of SBP to drop the interest rate by 75bps only and keeping it as high as 12.5pc.

“My humble submission is that it is not workable for the economy,” Ijaz said.

Naveed Gulzar, a leading textile miller from Faisalabad, said the 75bps reduction is insufficient, as people were expecting at least 200bps cut in the policy rate.

Talking to Pakistan Today, economic expert Dr Ikramul Haq said that the general response on SBP’s decision is that of ‘disappointment’.

“The SBP has not taken into account the ground realities. Many are of the view that the decision was taken due to the fear of losing hot money. They [SBP] should have brought it down by 250bps to 350bps.”

He said in addition to its decision on interest rates, the monetary policy committee also noted that the SBP’s new ‘Temporary Economic Refinancing Facility (TERF)’ for businesses – that provides SBP refinancing for bank lending for plant and machinery for new projects at 7pc fixed for 10 years – should provide important additional support to investment in response to the anticipated slowdown in activity due to coronavirus pandemic.

Economist Dr Qais Aslam said that it is high time to think about the declining investment climate in the country rather than the interests of the government and foreign portfolio investors.

Dr Aslam shared that bringing down the bank rate should stimulate local investment and manufacturing, bringing down the cost of doing business.

He said the finance ministry should at the same time bring down the indirect tax rates and business taxes, gas and electricity as well as the prices of petroleum products for an overall cut in costs otherwise the monetary policy alone might not be enough to stimulate the economy, which has been strongly hit by the contraction of the world economy and the Pakistan GDP growth.

Dr Aslam said that TERF and the refinancing facility for mitigation of coronavirus are appreciable measures of SBP.

“It is important is to find ways to give online employable and income generation opportunities for SMEs and the youth,” Dr Aslam said. “New out-of-the-box solutions have to be chalked out in order to help the economy and the people of Pakistan to increase income growth in these difficult times.”