KARACHI: Businessmen and industrialists unanimously expressed their puzzlement over the central bank’s decision to raise the interest rate by 250 basis points to 12.25% to curb inflation and called for reconsider this decision.

In separate statements, the Employers’ Federation of Pakistan (EFP), Karachi Chamber of Commerce and Industry (KCCI), Lahore Chamber of Commerce and Industry (LCCI) and Businessmen’s Group ( BMG) said that raising interest rates would prove disastrous for the economy. .

VET Chairman Ismail Suttar expressed bewilderment at the central bank’s decision and questioned the wisdom behind the act. The SBP claimed that this increase in interest rates was due to increased domestic political uncertainty as well as higher oil prices. The abrupt and volatile decision to raise the interest rate in the country led Pakistan to become one of the most inflated countries in the region, since the beginning of 2022.

“The point to note is that interest rates in corresponding countries such as India, Bangladesh, Sri Lanka and Bhutan are still within a range of 4% to 7.16%. Yet a country like Pakistan, which is experiencing socio-economic instability to a large extent, has been pressured into making sudden and ill-considered decisions in the name of stability,” he said.

In addition, the SBP has also increased export finance rates under the Export Finance Program (EFS) by 2.5%, in line with the increase in the policy rate announced at the MPC meeting that took place. is held recently. If such actions continue, Pakistan’s business community is bound to see another setback in terms of exports.

This solution adds fuel to the fire as it increases the cost of goods for businesses and individual consumers. “It will end up pushing the local businessman out of foreign markets,” he added.

In analyzing the economic structure at hand, EFP adheres to the belief that Pakistan’s economic structure was actually a cost-push inflationary structure, where an increase in interest rates would lead to a sharp rise in prices as opposed to a decrease. The historical trends of the past few decades have been enough to prove that rising interest rates have time and again hurt Pakistan’s economy.

BMG Chairman Zubair Motiwala and KCCI Chairman Muhammad Idrees urged the SBP Governor to immediately review and withdraw this irrational increase as it would prove disastrous for the economy, exports and industries.

In a joint statement released, they said the entire business and industry community was in shock. They called the rate hike an “anti-business, anti-economy and anti-export move, which was taken especially in a situation where the country’s economy was not that bad.”

The autonomy of the Central Bank “does not mean that it was free to take such a hard step overnight, which has never happened in 25 years of history”.

It was highly unfair to suddenly and exorbitantly raise interest rates without bothering to consult with stakeholders, they said.

KCCI, from time to time, has requested the SBP Governor to visit so that many monetary issues and central bank policies affecting businesses can be discussed in detail. But, unfortunately, “the Governor has no time to discuss some of the most pressing issues plaguing Karachi’s business community,” KCCI said.

They noted that last month, Pakistan’s exports registered an increase of 29.1% on a monthly basis (MoM) compared to last year, which clearly indicates that the export sector is performing very well. However, at present, increasing interest rates would have a profound negative impact on export performance.

It will be completely disastrous for future industries and investments as no one will come forward to build an industry due to exorbitant interest rates and high cost of doing business, they warned.

LCCI President Mian Nauman Kabir said: “A 2.5% increase would hit all sectors of the economy hard. The SBP should withdraw the massive hike in margin rates and reduce it to single digits to encourage new investment and business revival.

He said that increasing the margin rate would have disastrous consequences on our economic growth rate. “This will surely hamper the process of industrialization and the growth of the private sector. Pakistan should bring its margin rate back to the same level as the regional rates which are much lower,” he urged.