The interest rate policy is the much-awaited occasion for those who have bucks, who want to borrow/return bucks and those who have no bucks at all. The Monetary Policy Committee (MPC) of the State Bank of Pakistan said on Friday that the policy rate would remain at 7% for the next two months.
According to the statement, the MPC has been heartened by an upward revision in the FY21 growth prediction to 3.94 percent since its last meeting in March. “The MPC noted that this confirms the strength of the broad-based economic rebound underway since the start of the fiscal year, on the back of targeted fiscal measures and aggressive monetary stimulus,” it said.
This upward trend is projected to continue, resulting in larger growth next year, the statement said. The lingering impact of this February’s electricity tariff hike, as well as a pick-up in month-on-month food prices, partially driven by the customary seasonality around Ramzan, pushed inflation up to 11.1 percent year-on-year in April, according to the MPC. The newly announced policy rate received a mixed response from economists and leading businessmen of the country.
Speaking to Daily Times, All Pakistan Textile Mills Association (APTMA) Patron-in-Chief Gohar Ejaz said that the interest rate should be 3 percent for the economy to grow above 7 percent.
Senior Vice Chairman, Chainstore Association of Pakistan (CAP) Asfandyar Farrukh, said that with inflation and SPI numbers both depicting a downward trend for the last few months, the retail sector supports govt policy of not increasing cost of business for the organized retail sector that has suffered immensely due to Covid19 related lockdowns.
“Yet with falling inflation numbers, the retail sector is hopeful that interest rates will be brought down below 5% in the near future to help businesses plan significant investments to help achieve the higher GDP growth planned in the next 2 years,” he maintained.
He added that the retail sector serves as the crucial end sale point of every single item produced or imported in the country and hence any reduction in the cost of business will have the double effect of aiding economic growth and further bringing down inflation figures across the country.
Acclaimed economist Sakib Sherani while speaking exclusively to Daily Times said that this is largely in line with market consensus. SBP rightly believes that withdrawing the monetary accommodation early poses greater risks than withdrawing it too late. It is waiting for growth to entrench further and believes inflation is being caused by a small group of food and energy items and is not an economy-wide phenomenon as yet.
“It is difficult to disagree with the central bank’s assessment, though one can argue that the short-run inflation outlook is possibly worse than what SBP appears to be anticipating at this stage,” he said.
Nishat Hyundai Motors Pakistan Limited (NHMPL) CFO Noreez Abdullah said that it was a much needed stability for the industry to keep up with the negative inflation trend that has become the new norm around the world in post pandemic recovery.
“However this should not be misread as being led by the demand but more so due to the cost side escalation which requires targeted non-monetary measures,” he added.
Leading industrialist Waleed Saigol told Daily Times that the current rate environment is especially conducive to providing growth in the backdrop of covid19.
“A year ago we faced an unprecedented economic challenge and grave uncertainty, however the central bank has stepped in proactively and provided businesses with the cushion they need to navigate these difficult times,” he said.
Furthermore, the policy framework has been transparent and forward looking and that’s allowed us greater clarity in planning.