KARACHI, Feb 11 (INP): Sultan Ahmed Chawla, President FPCCI has expressed his disappointment at the decision of the State Bank to keep the base interest rate unchanged at 12.5 % during January to March 2010.

He said that the SBP Monetary Policy statement for the period continued to ignore Industry’s interest. The SBP’s own calculations show that growth of the large scale manufacturing sector continues to remain stagnant in the current year after having fallen by at hast 20 % during 2009.

Moreover investment growth in the manufacturing sector is constrained by the major decline in capital goods imparts during the first half of fiscal 2010. During the last 6 months exports has also fallen by 8% and Pakistani Businessmen are losing out in both domestic and International Markets.

The President FPCCI said that the SBP’s Monetary Policy can have little impact on CPI inflation. Inflation in Pakistan is a supply side phenomenon which is caused by rising energy industrial raw material and especially financial costs. By maintaining a high interest rate regime the State Bank is strangulating investment growth.

Monetary Policy is also ineffective because changes in the discount rate and inter bank rates do not lead to corresponding changes in bank lending rates. These remain exorbitantly high. A high interest rate policy is in fact exacerbating inflationary pressure by pushing up cost of production.

Moreover a tight high interest monetary policy depresses consumption demand squeezes profitability and increases poverty and the misdistribution of income.

The FPCCI President called for effective representation of industry’s interests on the SBP’s Board of Governors. He said that the FPCCI should formally nominate two business sector representatives to the Board of Directors of the State Bank.


INP/AH/GM