KARACHI, May 11: Pakistan Leather Garments Manufacturers and Exporters Association (Plgmea) Chairman Fawad Ijaz Khan has challenged the statement of State Bank Governor Dr Ishrat Husain that rising interest rates will not affect industrial production or economic growth.

However, the Plgmea chief in a statement issued here on Wednesday agreed with the SBP policy of increasing interest rates to check inflation.

He said that the export refinance had always been a subsidized scheme of the central bank and the mark-up on it should not have any direct link with prevailing interest rates. He suggested that the SBP can adopt this policy of linking export refinance rate with inflation provided the central bank discontinued supporting the rupee. “If the rupee is allowed to free-float, it would definitely be devalued and consequently exporters will get more revenue from exports which would offset the high mark-up paid by them on export refinance loans,” he added.

The chairman Plgmea said that a manufacturer who produced for the local market could absorb the impact of high interest rates by increasing prices, but exporters cannot increase their prices as they have to compete in international market.

The exporters who commit their export prices basing their costing on constant increase in export refinance rates risk loss of export orders. The affect of this decline in exports will be visible after four to five months.

Mr Fawad urged the SBP governor to end supporting the rupee and kept its policy of

linking interest rates with inflation or continued with its current policy of exchange mechanism and subsidized the export refinance scheme as being done previously.