Islamabad Chamber of Commerce & Industry (ICCI) has called upon the State Bank of Pakistan (SBP) to make a hefty cut in interest rate in the forthcoming monetary policy review for the first quarter (July-Sep) of the current FY 2010-11, bringing it down to single digit level as high interest rate is hampering investment and growth of business activities.

Mr.Zahid Maqbool, President, ICCI in a meeting of businessmen said that SBP’s approach of maintaining a high interest rate has not only added to the rising business costs causing losses for a number of industrial units, but has also made private sector credit very costly due to which making new investments has become an uphill task.

He said as per the latest World Investment Report-2010 released by the United Nations Conference on Trade and Development, foreign direct investment in Pakistan has dropped by 56.1 percent in 2009 as the country received $ 2.38 billion in 2009 as compared to $ 5.43 billion in 2008.

Mr.Zahid Maqbool said apart from deteriorating law & order situation, security challenges and frequent power and gas outages, high interest rate is an important factor making investors hesitant to invest in Pakistan.

He said Asia Pacific countries are maintaining a very low interest rate to stimulate their economies. India has kept its interest rate at 5%, China 5.31%, Japan 0.1%, Australia 4.5%, Hong Kong 0.5%, Korea 3%, Taiwan 1.25% & and New Zealand 2.75%. However, Pakistan has kept its interest at 12.5%, which takes lending rate to more than 16-17 percent depending upon the KIBOR rate and is the main cause of many economic problems.

Businesses said that Pakistan is still undergoing a period of economic slow down giving rise to unemployment & poverty. They demanded that interest rate should be cut down to single digit level to make bank borrowing more affordable, which will help in promoting new investment , expanding businesses and creating jobs.

They said that the main logic of keeping interest rate high was taming inflation. However, this strategy of the government has not produced desired results as the inflation is still running in double digit.

They said government should focus on improving supply side of the economy to control inflation. The optimum way to improve supply side is to stimulate the business activities for which making a big cut in interest is the key requirement, they said.