Unchanged discount rate

2986

AS was widely expected, the State Bank of Pakistan (SBP) held its main policy rate at 13.25 per cent on Monday, taking a pause from a series of recent hikes that it said had been enough to ensure the country’s high inflation would gradually reduce over the coming years. The central bank’s Monetary Policy Committee (MPC) said in a statement it had decided that holding rates was warranted given inflation had not dramatically accelerated since its last meeting. It claimed the current monetary policy stance was appropriate to slash inflation to the target range of 5-7pc over the next 24 months.
The central bank is taking certain corrective measures to prevent the economy from high inflation, growing circulation of money and decline in the growth rate and increase in interest rate is said to be part of the same strategy. No doubt, the State Bank is attempting to achieve economic stability by varying the quantity of money in circulation, the cost and availability of credit and the composition of a country’s national debt but experts believe the consistent increase in interest rate has failed to achieve any of these objectives and instead inflation has increased significantly and developmental activities came to a virtual standstill as far as the private sector is concerned. This is because agricultural, industrial and export sectors are reluctant in getting fresh credit lines due to increase in financing cost. It was in this background that a former Finance Secretary has expressed surprise that why higher interest rate would continue for four months period persistently without having any economic justification and that there was need to analyze heavy cost incurred to the national economy because of this flawed policy. It is strange that at a time when the Government is claiming day in and day out that it was working for ensuring ease of doing business, the actual policies run contrary to this cherished objective. Interest rate is one of the major factors in determining the cost of doing business and frequent hikes in the rate betray that objective especially when the rate of electricity and gas also go up besides increase in prices of POL products. The interest rate at 13.25 is the highest in the region and needs to be revised downward if we are genuinely interested to stimulate the economy.

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