May 01, 2007	Tuesday	Rabi-us-Sani 13, 1428

KARACHI, April 30: State Bank of Pakistan (SBP) is advising commercial banks to raise deposit rates and not to charge excessively over premium on lending, said SBP Governor Dr Shamshad Akhtar on Monday at the Federation House.

Delivering a lecture on “Monetary Policy Formulation” to the members of FPCCI she said that banks were required to enhance their rate of interest on deposits as at present “return is on negative side.”

She said that banks were continuously asked to “not to charge excessively over premium rates. We are trying to control the broad spread of the banks,” she added.

There will be increasing competition as already there are good banks and more are coming, including big foreign banks, she said adding that the banking sector was “deliberately consolidated” by the SBP.

The SBP is avoiding direction regime and bracing for advisory role, she said adding that deposit rates are now higher than that they were few months back and lending rates would also scale down, she hoped. Referring to a question about lowest returns, she advised the investors/exporters to move from one bank to another, which is giving better rate of return. This was simple business according to market forces, the SBP governor said.

Earlier, in her discourse on the topic, she said that the monetary policy formulation underwent a phenomenal policy change and now economic dynamism rules supreme. The SBP is improving quality of monetary policy formulation according to the international standards.

She said that for the first time, a formal committee has been formed which reviews economic performance every six months. This is purely an in-house exercise and was done in a very transparent manner.

Inflation was primarily a monetary phenomenon, she said quoting a top international expert and added that SBP is performing its role by keeping macro-economic imbalances, which give rise to inflation, in control.

Responding to a demand made by the FPCCI president for lowering rate of mark-up, she said that Pakistan's economic experience was reflective of the fact that low interest rate in the country always gave rise to fiscal indiscipline. The low mark-up rates always sent a wrong signal to investors and the government, she said emphatically.—APP