PIAF terms monetary tightening as negative development for economy

PIAF terms monetary tightening as negative development for economy

ISLAMABAD (INP): The Pakistan Industrial & Traders Associations Front (PIAF), while flaying the huge jump of 2.25% in key policy rate by the central bank, has appealed the SBP to review its tight monetary policy stance as it will hamper the production and thwart the economic growth of the country.
PIAF senior vice chairman Nasir Hameed and vice chairman Javed Siddiqi, in a joint statement, baulked at a 225 basis points (bps) hike in the policy rate, terming it a negative development that would further burden the industry.
The State Bank of Pakistan jacked up the policy rate to 12.25% in a bid to thwart inflation and balance of payment risks. Reacting to this higher-than-hoped monetary tightening, the PIAF leadership termed it a negative development which would further burden the industry in the wake of high cost of business and prices of inputs.
Nasir Hameed said that the growth in large-scale manufacturing industries is already nominal in the first quarter of current fiscal year, as the industries were poised to face the impact of high input prices and shortage of energy, while further hike in markup rate is another threat for them.
Nasir Hameed said that the low base effect has so far been driving the growth in large industries as the index had dropped to the low level before Covid-19 struck Pakistan. Since large industries contribute heavily to revenue collection and job creation, any change in key policy rate will affect negatively on the growth of industry, he added.
Javed Siddiqi said that high interest rates in low growth environment will create bad debts in the private sector squeezing fiscal space for development. He said the current high monetary policy will depress the domestic demand and retard the economic progress. He said the current monetary policy will also stifle capital formation both in the public and the private sectors. He said despite nominal growth, inflationary pressures are again building up in the economy while steep depreciation of the rupee is pushing up prices of imported industrial inputs, which will further cripple industrial activities.
He said inflation in Pakistan was cost-push, which spiked due to surging prices of commodities in world markets as well as deprecation of the rupee against the dollar.
The economy doesn’t have the capacity to absorb the high interest rate as it was already struggling with the weak exchange rate,” he pointed out.
He added that the free hand given to the SBP was in fact making matters complicated for the country, as well as industry.
Ruling out the impression that high interest rate would dent credit off-take to industry, he said in reality only large businesses were the beneficiaries of bank credits. SMEs are still deprived of this facility and will remain so in the present situation, he said.
He described the rate hike as huge, however, added that the step had been taken to stabilize the currency situation in the country. Economy is already red-hot as all sectors are performing exceptionally well and would not be adversely impacted by the latest development, he said, explaining the impact of this monetary tightening on the economy. He said the hike was apparently aimed at cooling off the red-hot economy.
The interest rate hike would impact consumer financing especially auto-financing as well as reduce the hoarding of commodities as a high interest rate would make borrowing costlier for hoarders, he said.

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