Drop in SBP policy rate essential to make industry competitive

Pakistan Industrial and Traders Association Front chairman Mian Nauman Kabir has said that the drop in the policy rate is essential to make Pakistani exporting sector as well as the local industry competitive, as the interest rates in regional are still lower than Pakistan.

In a joint statement with vice chairman Javed Siddiqi, he said that after the corona devastation, Pakistan should take advantage of those export orders canceled by the other regional countries. For this, the government will have to reduce production cost of the industries to avail this offer by the international buyers.

Mian Nauman Kabir said the future anticipated expected inflation will further decline due to low demand amidst second wave of coronavirus. On the other hands external front is also presently sustainable due to foreign financial support and rescheduling of debt that has supported reduction in current account deficit, he added.

He further stated that with both demand-driven and import-based inflation is in check, so it needs to further slash the interest rates as the businesses cannot survive on such uncompetitive KIBOR rate. The impact to banks on their deposits will be insignificant as majority is demand deposits instead of time deposits.

While appreciating the central bank's role in sustaining economic growth through supporting trade and industry, the PIAF Chairman said that reduction in interest rate would be the vital relief to the business community.

He said SBP should take measures and develop strategy to protect the pace of economic and trade progress of Pakistan otherwise the country might face again lower industrial growth and shifting of industrial units to the sick industry.

Mian Nauman Kabir said that the SBP has accepted that inflation is due entirely to an increase in food prices and that these supply side pressures are likely to be temporary and average inflation is expected to fall within the range of 7 to 9 percent. Moreover, the large scale manufacturing index of food has also increased from negative to positive, growing by almost 13 percent, which should continue with the support of government policies. The MPS has also referred to growth recovery and stated that large scale manufacturing output is continuing to rebound, expanding by 4.8 percent.

PIAF Vice Chairman Javed Siddiqi also raised his serious concern over the high interest rate in the country as compared to the region.

He said that the recent 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 filed especially to the export industry.

He said that the PIAF appreciates the central bank to bring its policy rate to 7 percent from a high of 13.25 percent and several other measures of continuing fiscal, monetary and credit stimulus, but suggest the SBP committee more reduction of interest rate to cut it to at least 5 percent.