KARACHI: Traders and industry on Thursday categorically rejected the State Bank of Pakistan’s (SBP) policy rate hike by 250 basis points to 12.25 per cent, stressing the cost of doing business, which is already up due to the volatile exchange rate, will further come under pressure.

The representatives of trade and industry also criticised the SBP’s role in not taking any effective steps to control the rupee’s decline against the dollar and instead of coming up with a highly unexpected decision of raising the policy rate in an uncertain political and business environment.

They believe that the country was already undergoing a fragile political crisis after the dissolution of the National Assembly and the increase in interest rate would further cast gloom on the already ailing economy marred by the losing strength of the rupee against the dollar.

“There was no hurry to push up the interest rate. The SBP should have waited till the final verdict of the Supreme Court which might have settled down the political dust and revived economic activities gradually,” said Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Irfan Iqbal Sheikh.

“The country is passing through a difficult phase in view of massive rupee devaluation against the dollar which is bound to increase the cost of imported raw materials. Dark clouds are hovering on the stock market and there is a flight of capital from Pakistan. The SBP’s decision to increase the interest rates looks untimely,” the FPCCI president added.

Karachi Chamber of Commerce and Industry (KCCI) President Mohammad Idrees said the central banks of various countries were lowering the interest rate while the SBP was going in the opposite direction.

“The SBP has raised the interest rate to reduce pressure on inflation. Pakistan’s economy is import-oriented where exchange rate plays havoc with the commodity and raw material prices,” the KCCI president said.

He opined that the prices of raw materials and finished products were already high and they will further soar in view of the continuous rupee fall against the dollar which would push up the cost of doing business.

“In the absence of any government, the SBP’s decision to raise interest rate will further ruin the economy,” the KCCI chief said, adding this is why the KCCI had opposed the bill for SBP’s autonomy.

Mr Idrees was of the view that the SBP had taken the decision to enhance the policy rate as per instruction of the International Monetary Fund (IMF). “The decision is not based keeping in view the situation of trade and economy,” he added.

Patron Karachi Wholesalers Grocers Association (KWGA), Anis Majeed said the SBP had taken a unilateral decision in view of the absence of any government.

He said the SBP had previously cut the interest rate on government intervention and pressure from businesses, but now it was free to raise the policy rate.

“I fail to understand how the policy rate will curb food inflation as the high-interest rate and rupee depreciation will increase the cost of doing business,” Mr Majeed said.

Association of Pakistan Motorcycle Assemblers Chairman Mohammad Sabir Sheikh said the SBP had been watching the rupee fall against the greenback from the sidelines since the political uncertainty has gripped the country. “Now it has come up with an increase of 250bps in interest rates to do the rest of the damage to the economy.

Published in Dawn, April 8th, 2022