Tight monetary policy is stifling growth – ICCI

  • February 17, 2010
Traders and Industrialists in a meeting at Islamabad Chamber of Commerce & Industry (ICCI) have demanded of the government to review its tight monetary policy as it is hampering production and retarding the economic growth of the country.

They said tight monetary policy has not produced desired results for the economy as the inflation rate on which the current policy is based, is once again surging.

Chairing the meeting, Zahid Maqbool, President ICCI said that the tight monetary policy is casting multiple negative effects on the economy as it has kept interest rate very high causing sharp fall in the value of rupee, Squeezing credit for private sector and reducing domestic savings, investment, production and exports. He said it is righttime that SBP should revisit its monetary policy to mitigate its harmful impact on the business and economy.

He said if India has maintained its key policy rate at 4.75 percent while China has also kept its interest rate low to attract investment and stimulate the economy. He said if India can manage surging inflation through regulatory tools without throttling growth, why Pakistan cannot take benefit of such approach.

Businessmen said high interest rates in low growth environment are creating bad debts in the private sector squeezing fiscal space for development. They said the current monetary policy is depressing domestic demand and retarding the economic progress.

They said the current monetary policy is also stifling capital formation both in the public and the private sectors. They said despite slow 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.

They said it is high time that government should revise interest rate to turn Pakistan into a production economy. They said our future lies in strengthening the production sectors, but that would require the government to make a decision and cut the cost of credit as there is no justification to keep interest rates that high particularly when this policy is unlikely to produce the desired results in the wake of cost-pushed inflation.