KARACHI: President Employers’ Federation of Pakistan (EFP), Ismail Suttar was completely perplexed by the central bank’s actions towards the recent inflation rates.
He affirmed that the State Bank’s action to run riot in increasing the level of already augmented interest rates proves that there is an absolute uncertainty about the correlation between inflation and interest rates in our noble political structure.
The EFP president said that examining the new normal the State bank of Pakistan has decided to spike up the interest rates for a second time to a solid 9.75% with further expectation of increase in contrast to a decrease. The Central bank of Pakistan claimed that this increase in interest rate was due to a large deficit in the balance of trade, particularly led by the imported inflation phenomenon.
“If such actions subsist the business community of Pakistan is bound to see another setback in terms of exports, the so called solution to the problem is actually adding fuel to the fire by spiking up prices of cost of goods sold for the business community of Pakistan and hence contributing to an increase in prices for the average everyday individual, eventually pushing the local businessman out of foreign markets”, he added.
Suttar was of the opinion that when the current government came into being the basic interest rate was 7.5% and the quarterly deficit of current accounts exceeded four billion dollars, with a 6.2% speed of inflation in August 2018. In order to control the deterioration of the economic structure, the central bank gradually increased the interest rate to an all high 13.25% by 17th July 2019 which led to major losses in the current accounts. With the lapse of time, the central bank observed the balance of trade escalating and consequently took actions to dampen the extortionate interest rate, all in the midst of Covid-19, but as the economy came back to the functioning norm, things started to deteriorate once again.
He further said that the historic trends of the past few decades are enough to prove that an increase in interest rates have adversely affected Pakistan’s economy time and again. Analyzing the economic structure at hand, Employers’ Federation of Pakistan adheres to the belief that the economic structure of Pakistan, is in actual reality, a cost push inflationary structure, where an increase in interest rates will cause a boisterous rise in prices as opposed to a decrease.
Suttar said “The State Bank of Pakistan should keep in consideration that such actions, only by means of simple incomprehension are bound to hit economies negatively. A simple deliberation on the matter, can lead us to realize that the traditional system of increasing interest rates is resulting in collapse in the economic structure of Pakistan and if no action is taken in due time the country would be facing the recession upfront”, he said, adding that the economic structure of Pakistan, being cost push can tackle the inflation issue by tough administrative or fiscal policy regimes. As always, the consideration and analysis of important entities in this regard will play a very vital role in the establishment of sustainable systems that will build the trust of business communities in the region to foster growth and development on their end.