SBP’s welcome move to boost economy
ON the back of improving economic indicators, the State Bank of Pakistan has slashed interest rate to historic 5.75 percent from 6 percent — a positive initiative to further reduce the cost of doing business and encourage entrepreneurs to invest in different lucrative fields. The decision has been taken as businessmen and industry circles were strongly pleading for a growth based monetary policy.
The policy rate was previously cut by 50 basis points to 6 percent in September 2015 and since then the central bank had been maintaining it. The recent reduction would be beneficial as it would further cut the input cost for businesses, facilitate easy credit availability to the private sector and encourage new investments. The large scale manufacturing sector, which has witnessed a significant growth over the last three years, is expected to benefit the most from this decision due to low prices of raw material. This comes as Finance Minister Ishaq Dar while addressing a pre-budget seminar on Saturday also gave glad tidings about the future economic prospects saying the economy will remain robust in the coming years while at the same time he announced the good news that no new tax would be imposed in the next budget. This, indeed, should give confidence to the business community and encourage them to invest in different sectors of economy ultimately leading to creation of many job opportunities for the youth. To get desired positive results of lowering the interest rate we suggest that government avoid borrowing from commercial banks for deficit financing otherwise resources from commercial banks may be shifted to public sector instead of private sector, which could damage industrialisation. Similarly, the flow of lending should encourage small-medium enterprises as it would not only alleviate poverty but also help the government to achieve goal of seven percent growth rate in the next two to three years.