Inflation cannot be controlled through high policy rate: FPCCI

Inflation cannot be controlled through high policy rate: FPCCI

KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Wednesday said that inflation in Pakistan is cost push and it cannot be controlled through tight monetary policy stance.

FPCCI President Engr. Daroo Khan Achakzai in a statement said that the State Bank of Pakistan (SBP) had kept the high interest rate due to inflationary outlook.

He underlined the need of declining of policy rate in Pakistan which is very high compared to regional economies like policy rate in India is 5.15 percent, China 4.35 percent, Sri Lanka 8.0 percent, Malaysia 3.0 percent, Thailand 1.25 percent, Indonesia 6.5 percent etc.

He urged the SBP to decline the policy rate in order to increase the demand of private sector credit which will ultimately help in new industrialization and increase in economic growth rate.

He also expressed serious concern over the declining of private sector credit by Rs 4.1 billion in the first four month of current fiscal year.

The FPCCI chief stated that the declining of demand of private sector credit is due to high cost of borrowing and slow economic activity in the country which will subsequently affect the next year economic growth and unemployment.

While commenting on the monetary policy, he added that the SBP is continuously adopted contractionary monetary policy and keep the policy rate at 13.25 percent while on the other side the government has declined profit rates on the National Saving Schemes (NSS) which are discouraging the saving environment in Pakistan.

He added that declining of lending rate on saving and high borrowing rates benefits the banks in term of high spread.

He further added that savings are the backbone of investment viz., higher savings lead to higher investment and higher growth in an economy provided that the other macroeconomic variables are conducive and a developed financial system exists in the economy.

He appreciated the efforts of government for eliminating the current account deficit and zero borrowing from central bank which indicates availability of credit for new investment.

As the business environment has improved in Pakistan but now there is a need of promotion of new investment in real sector and SMEs which will help in creating economic stability and development in Pakistan.