High policy rate stifles economic activity; dwindles profits, job cuts

High policy rate stifles economic activity; dwindles profits, job cuts

KARACHI: High policy rate has stifled the economic activity, resulting in dwindled profits and job cuts, this was noted in the financial results of Honda Atlas Cars (Pakistan) Limited for the period of third quarter ended December 2019.

The decision of the State Bank of Pakistan (SBP) leaving policy rate unchanged at 13.25 percent. The high policy rate has stifled the economic activity, resulting in dwindled profits and job cuts.

“Car financing also badly suffers as banks charge hefty mark-up of 6 to 8 percent on the policy rate.” Current policy rate has also heavily shifted the balance in favour of fixed investment loans, the company said.

The automobile industry is still reeling under pressure of Federal Excise Duty (FED) and additional customs duty imposed in the current fiscal year. Apart from regulatory duties, steep interest rate of 13.25 percent has further hurt the already ailing sector.

Although car prices remained relatively stable during the third quarter ended December 31, 2019, it failed to spark customer sentiment.

The industry production during the period March-December 2019 dropped to 103,873 units from 172,551 units a year ago while car sales plunged by 33.8 percent to 110,113 units from 166,391 units during the same period last year.

Accordingly, the Company produced 17,080 units against 37,544 units and sold 16,503 units as compared with 36,771 units in the same period of last year.

The industrial slowdown indicates a considerable contraction in aggregate demand. The output of large-scale manufacturing (LSM) receded by 6.5 percent year-on-year between July to October 2019.

The impact of macroeconomic stabilization policies and exchange rate depreciation contributed to both supply-side pressures and lower demand for domestic industries.

The industry which has been hit most severely is automobiles. It has witnessed a steep fall of approximately 43 percent in car sales during July to December of the current fiscal year.