ISLAMABAD: In the wake of growing criticism, the Prime Minister Imran Khan-led government of the Pakistan Tehreek-e-Insaf (PTI) government has called a meeting of Monetary and Fiscal Policies Coordination Board (MFPCB) on Wednesday to convince the State Bank of Pakistan (SBP) to reduce the policy rate, a local newspaper has reported.
Following the programme of the International Monetary Fund (IMF), the central bank has maintained a tight monetary policy and has kept the discount rate at 13.25 percent for the last many months. Independent economists opine that current higher monetary rate is unjustified in the current scenario since the economy is showing improvement.
According to the report, all federal ministries, being part of MFPCB will recommend to the SBP to cute the policy rate by 50 basis points in its next monetary policy due next month.
On the other hand, State Bank of Pakistan (SBP) Governor Reza Baqir recently said that the current tight monetary policy stance is appropriate to help ease crippling inflation rates in the months to come. He further said inflation had risen due to depreciation of the rupee, increases in utility prices and one-off factors related to temporary food supply chain disruptions. Reza stressed that economic policies are addressing previously accumulated external and fiscal sector imbalances.
Discount Rate is merely floating over surface in good manner and ultimate result of it, comes in positive direction.Due to Tight Monetary policy and keeping in view of result, present discount rate (DR), to be keep in same position rather than to drop some 50 digits from present one.
Moreover, Government should further take a strict action against those ones/Industrialist / Cos./Firms/persons , who are engaged to make extraordinary profits by creation of unstable economical environment /or inflation in commodities prices.
It does note make economic sense to reduce interest rates given the current inflation rate. Moreover if the inflation rate does not drop, SBP may be forced to partially increase the rate in the next monetary policy. I suggest that we get our house in order before asking for any rate drop. The exporters are already getting financing at dirt cheap rates and other industries also have strong margins to bear the higher financial costs for the time being.