APBF backs SBP policy rate cut as private capital inflows are weak yet
With weaknesses in private capital inflows continue to persist, the All Pakistan Business Forum (APBF) President Ibrahim Qureshi on Monday supported the Central Bank’s decision to cut policy rates by 0.25 % to spur growth, saying the decision would infuse confidence in the business community and propel economy which was hostage to the past policy of austerity.
“The businessmen welcomed the SBP’s decision of cutting interest rate by another 25 basis points to 5.75%, as the rate cut would help boost private sector growth.” However, he complained that lending to the private sector by the commercial banks during the last 10 months of the current fiscal year has not picked up a pace.
Qureshi said the State Bank governor deserved appreciation for bringing down the interest rate to 5.75%. He also called for steps to fight energy crisis, security challenges and political instability to make an interest rate cut meaningful and result-oriented.
Ibrahim Qureshi said that the decision reflects coordination among important institutions but the reduction in interest rate will not serve the purpose unless the pace of reforms is increased. He called for supporting large-scale manufacturing and credit to the private sector which is sliding, stopping the flight of capital, improving tax machinery and curbing speculation of different sectors.
Some eight years back in 2007, banks were providing 67 per cent credit to the private sector which has fallen to just 37 per cent by 2014, he said. He added as per monetary policy statement January, banks provided a total credit of Rs 224.5 billion to the private sector during the first half of current financial year as compared to Rs 325.8 billion during the same period of last year which again shows banks’ declining supporting role to the private sector.
The APBF president said that the cut in policy rate is unexpected, which seems to be a populist decision before the budget as the headline CPI inflation sustained its rising trend for the seventh consecutive month and on annual basis rose to 4.2 percent in April 2016 from the low of 1.3 percent in September 2015. In addition to the seasonal impact of perishable food items and services, this increase owes to further waning of the base effect and second round impact of the decline in oil prices.
Similarly, core inflation measures have broadly followed a rising trend in this fiscal year indicating the buildup of underlying inflationary tendencies. Despite these trends and developments, going into next fiscal year inflation is likely to attain a higher plateau.
Ibrahim Qureshi suggested the government to observe restraint while getting loans from commercial banks and improve governance to ensure 5.5 percent growth target which has not been achieved so far. It is unfortunate that out of 200 potential taxpayers only one submits return which forces the government to impose indirect taxes hurting vulnerable and seek foreign assistance to balance the budget.
He said that extra attention to improve sentiments of the business community will convince many to invest in Pakistan relieving country of foreign loans as Pakistanis invested over 4.25 billion dollars in the Dubai real estate sector in the last two years which could have utilized to help the country overcome chronic problems.
He said that some quarters have been criticizing the SBP decision citing reduction in the profit rates of depositors who are overlooking the factor that economic revival is linked to agriculture and industry, not savings.
