SBP likely to review current interest rate
Source: Customs Today Newspaper
KARACHI: Pressure is mounting on the State Bank of Pakistan (SBP) to call an emergency meeting and review the current interest rate amid a drop in inflation, according to sources in the financial sector.
Just before release of the latest inflation figures, the central bank kept the interest rate unchanged when it announced the monetary policy on April 29.
The Consumer Price Index (CPI) fell to 17.3 per cent last month, strengthening trade and industry's clamour for a respite from a record high interest rate.
Most financial experts were hopeful of a rate cut this week, but were surprised to see the over-cautious approach of the SBP.
Interest rate kept unchanged despite significant drop in CPI
The trade and industry widely criticised the central bank for not reducing the interest rate as it had made the cost of doing business prohibitive and rendered their products uncompetitive.
However, the latest inflation data has once again encouraged the stakeholders to ask the government for slashing the interest rate. Sources in the financial sector said people from trade and industry have been pressing the government to persuade the SBP to bring down the rate.
"It is illogical that SBP fixed the rate at 22pc when the CPI was 29pc, but keeps it unchanged when inflation is down to 17.3pc," lamented a senior banker.
The interest rate is 4.7pc higher than headline inflation, clearly providing space for a reduction, the banker added.
A number of analysts who had predicted a cut in interest rate, said the SBP should call an emergency meeting to review its decision to keep the rate unchanged at 22pc.
The high interest rate has stunted economic growth -- the GDP was negative in FY23 and is not expected to cross the two per cent mark in FY24.
Compromising on growth has already made life difficult for millions. Instead of creating new jobs, a negative or poor economic growth renders many jobless.
Since more than 40pc Pakistanis are below the poverty line, low growth would simply drag more people below the subsistence level.
The caretakers and the current government have failed to check inflation. By keeping the interest rate at 22pc, the SBP blocked the flow of liquidity towards the private sector.
At the same time, the government has borrowed Rs5.7 trillion in FY24 so far and spent Rs5.52tr on interest payments. The payment on interest was Rs1.94tr, or 54pc, higher than during the same period of the previous fiscal year.