LAHORE, Sept 9: Terming the increase in lending rates as a temporary phenomenon caused by inflationary pressures on the economy, State Bank Governor Dr Ishrat Husain on Friday advised businessmen to adjust themselves with the reality and try to live with higher cost of credit. “The interest rates will continue to rise as long as inflation is not controlled and brought down. You cannot enjoy cheap credit all your life,” he sounded a warning to the businessmen at the Lahore Chamber of Commerce and Industry (LCCI).

The better part of Dr Ishrat’s time at the LCCI was consumed by discussion on increase in the interest rates during the second half of the last fiscal.

He said the businessmen had enjoyed the fruits of low rates of inflation during the last four years in the shape of low lending rates. “We hiked the lending rate when inflationary pressures set in. Let me tell you that lending rates will not come down unless inflation is brought down. The policy of tightening the monetary policy will continue,” he said.

“You’ve been getting loans at as low interest rates as 3-4 per cent for the last three years. Now you don’t want to pay a higher cost for credit. But, let me remind you that the credit cost is still far lower than 16-17 per cent you had to pay a few years ago,” he said.

“We’re taking effective steps and pursuing policies to control inflation at eight per cent during the current (fiscal) year,” he said. But he refused to say whether the interest rates would stay at their current level or drop once inflation was brought down to the budgetary target of eight per cent. “It would depend upon the average rate of inflation,” he told a questioner.

Dr Ishrat admitted that the government’s policy to allow the monetary expansion to push the economic growth in the country was an important factor responsible for driving inflation up. But, he said, a record rise in the international petroleum prices as well as an increase in the rates of food items like wheat, sugar, meat and vegetables owing to a wide gap in their demand and supply had considerably contributed to higher inflation.

“In order to control inflation, we’ve taken several steps, and tightened monetary policy by raising lending rates and permitted duty-free import of sugar, vegetables and livestock to bridge the gap between demand and supply. These measures will help bring down the inflation rate, and consequently the lending rates,” he said.