ICCI flays high discount rate; business community hopes dashed

  • January 31, 2011
There is a total uncertainty in the country’s economic sector due to high mark-up rates, policy makers should take steps to bring down mark-up rate to increase investment for improving the economy.

Islamabad Chamber of Commerce & Industry (ICCI) has expressed its strong reservation over State Bank of Pakistan’s decision to maintain the same level of policy rate. Such policy restrains investment and trade activities in Pakistan and continually hampering growth of manufacturing in Pakistan, Mahfooz Elahi, President of ICCI has said, addressing a business community at Islamabad Chamber of Commerce & Industry.

Elahi said that the high mark-up rate was kept unchanged against expectations of a 50 basis points reduction and a weak economy exercise continues to give a double blow to borrower’s payment capacity.

He said that an interest rate of 14 percent is one of the highest in the world as compared to India at 6.25 percent, China at 5.56 percent, Thailand at 1.5 percent and South Korea at 2.25 percent. The domestic exporters have become uncompetitive in export market due to massive overheads, he maintained.

President of ICCI urged that SBP should cut the discount rate to provide relief to industry that is facing various problems mainly increasing cost of doing business. There is a dire need of private sector investment in current crisis prevailing in our economy and SBP is using an inappropriate tool as of tight monetary policy to compensate for the government's borrowing for financing its current expenditures, he opinioned.

Considering the current economic slowdown, the SBP should make a deep cut in the discount rate, Elahi added.

The unchanged policy rate will not provide any relief to the industrial or corporate sectors, and it could result in a deepened recession this year, Islamabad Chamber of Commerce & Industry President Mahfooz Elahi said. To promote industrial and economic growth, the government and the SBP should cut the mark-up rate down to a single digit, he contended.

Elahi believed that high mark-up rates and less availability of cheaper credit for the private sector especially for setting up industrial units or reviving sick industrial units is hindering the future investment.

He said the SBP decision to keep unchanged interest rate has dashed the hopes of the business community, which was expecting a remarkable cut in the existing rate of mark-up. ICCI urged the central bank to announce cut in interest rate, which is a prerequisite to enhance productivity. Tight monetary policy is no solution to economic problems, he maintained.