KARACHI: While slamming another 100 basis points hike in the benchmark interest rate to a record 21 per cent, the business community on Tuesday questioned the government’s approach of fighting inflation by jacking up lending rates saying the strategy has failed to produce desired results but slowed down economic activities.

“The entire business community has refused to accept the 100 basis points hike in the policy rate to an all-time high at 21 per cent,” announced Federation of Pakistan Chambers of Commerce and Industry President Irfan Iqbal Sheikh.

In a statement, he said the benchmark interest rate has risen by a whopping 1125bps in the last 14 months but failed to check inflation. “If that is not the governance and regulatory failure, then what would the failure look like to move the government for a course correction? he asked.

The trimming of growth projections by both the World Bank and the Asian Development Bank to 0.4-0.6pc for FY23 is the direct outcome of the regressive, IMF-dictated and recessionary monetary policy which has dried out the access to finance for businesses, the FPCCI chief lamented. The country’s exports have posted negative growth for the seventh month in a row and the two major industries like textile and IT have persistently been facing a decline.

He said the 21pc interest rate is far higher compared to what is prevailing in China, India and Bangladesh at 2.75pc, 6.5pc and 6pc respectively.

Inflation in Pakistan, however, appears to be deep-rooted and it mainly stems from substantial exchange rate depreciation, unprecedented hike in international commodity prices, multiple rounds of hikes in energy tariffs and other prescribed measures under the IMF programme, he noted.

Despite raising the SBP policy rate from 9.75bps in February 2022 to 21pc in the current month, inflation remained stubbornly high and a further surge is a manifestation of an utter failure of the monetary policy, the FPCCI president observed.

Pakistan Business Council chief executive Ehsan Malik said the latest hike in the policy rate, much like other recent rises, would do nothing to control cost-push and devaluation-led inflation. “Nor in this politically turbulent time will it buffer the value of the rupee,” he added. On the other hand, he said it would raise the cost of borrowing for the formal sector already suffering from low capacity utilisation due to an import crunch. “It is time that the State Bank of Pakistan (SBP) adopts a more differentiated stance on the use of monetary policy,” Ehsan said.

SITE Association of Industry President Riaz Uddin said the hike in the interest rate would further increase the cost of doing business which is already hit by rupee devaluation against the dollar, rising gas and power bills, dollar crisis, shutdowns of various industries due to raw material shortage, etc.

Published in Dawn, April 5rd, 2023