KARACHI: The ruling group of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has raised concerns over the State Bank of Pakistan’s decision to keep monetary policy rate unchanged at 7pc for the third consecutive time.
However, it hailed the bank’s indication of maintaining its accommodative monetary stance in the near-term to support recovery amid uncertain Covid-19 challenges.
In a statement issued on Saturday, Businessmen Panel (BMP) Chairman Mian Anjum Nisar said in view of the policy rates in neighbouring countries, Pakistan’s 7pc interest rate is very high, and that its reduction is essential to make Pakistan’s exports as well as the local industry competitive.
“After the devastation caused by coronavirus, Pakistan should take advantage of those export orders canceled by other regional countries. For this, the government will have to reduce production cost of industries,” he added.
Nisar opined the inflation would decline further in the near future due to low demand amid the second wave of coronavirus. On the other hand, he said, the external front is also presently sustainable due to foreign financial support and rescheduling of debt, which has helped reduce current account deficit.
He termed the 7pc policy rate as insufficient, especially at a time when there are extraordinary prospects for Pakistani exporters in the wake of worldwide trade and industrial lockdowns.
“The central bank keeping the discount rate unchanged at 7pc is not understandable and confusing, as the bank had expressed satisfaction over declining inflation and rising growth, saying the risks to the outlook for both growth and inflation appeared balanced,” he stated, referring to the central bank reports.
The former FPCCI president further observed that most economic activity data and indicators of consumer and business sentiments have shown continuous improvement.
He said the trajectory of the Covid pandemic is difficult to predict, given the still-elevated global cases, the emergence of new strains, and lingering uncertainties about the roll-out of vaccines worldwide.
“Trade and industry needs continuous support from the government in the form of lower interest rate amidst such external shocks,” he suggested.
Nisar noted that the large-scale manufacturing grew by 7.4pc year-on-year in Oct and 14.5pc in Nov 2020, while recovery in manufacturing activities is also becoming more broad-based, with 12 out of 15 sub-sectors registering positive growth in Nov and employment beginning to recover.
On the external sector, he said the outlook for the external sector has improved further and the current account deficit for FY21 is now projected to remain below 1pc of GDP.
He said the current account remained in surplus during the first half of FY21, at $1.1bn compared to a deficit of over $2bn during the same period last year. This improvement has been mainly driven by workers’ remittances, which have remained above $2bn every month during the current fiscal year, he added.
Encouragingly, he said, exports have also recovered to their pre-Covid monthly level of around $2 billion since Sept 2020, with a broad-based recovery in export volumes recorded in almost all categories in Dec.
Nisar said that the reduction in electricity tariff for SMEs was the first step towards cut in production cost while the second and vital step toward this direction would be bringing discount rate to the regional level with a view to provide level-playing field especially to the export industry. “The decision would have the same importance for the domestic industry too, as it has also been facing tough competition of cheaper imported merchandize in the country following FTAs with several countries, including China.”
He said the group appreciates the central bank to bring its policy rate to 7pc from a high of 13.25pc and several other measures of continuing fiscal, monetary and credit stimulus, but suggests the SBP committee to further lower interest rate to at least 5pc.
He said SBP should take measures and develop a strategy to protect the pace of economic and trade progress of Pakistan, otherwise the country might again face lower industrial growth.
