KARACHI, Aug 1: Businessmen and industrialists appear dissatisfied with the monetary policy announced by the State Bank’s Governor Dr Shamshad Akhtar on Tuesday and they have sought changes to the policy for the betterment of economy and for boosting exports.

President, Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Tanvir Ahmed Sheikh, showed his serious concern over further tightening of monetary policy. The monetary authorities have not considered the recommendations and suggestions proposed by the industry representatives to curtail trade deficit and investment promotion in the country, he added.

He did not agree with the monetary policy statement that “refinancing schemes have adverse economic outcomes.”

He mentioned that export finance scheme had been playing a major role in the growth of exports when exports were not possible because of competition in international markets and Pakistani products had been facing uneven playing field, anti-dumping duties and high cost of production.

He also disagreed with the statement that commercial banks had no incentives to tap more deposits because of the EFS. He added that EFS loans were a smaller part of the commercial banks’ lending portfolio and banks get refinancing facility from the State Bank. Under the new mechanism, bankers will be reluctant to give export re-finance to exporters which is bound to demoralise all exporters.

He further mentioned that zero-rated reserves requirement for long-term deposits will enhance banks’ lending capabilities, so in the presence of this policy measure, there is no justification of higher discount rate.

Tanvir said under the present monetary policy, the SBP considered only supply side of the credit; and it completely ignored the demand for credit by different sectors and the impact of high credit cost on industrial competitiveness.

The contraction policy in the present situation would lead to rapid growth in banks’ profits only. As evident for the last two years’ contraction policy experiment, tight monetary policy increased banks profit only; it amplified the rich-poor gap because of the high interest rate spread where depositors are earning low interest on their bank deposits and industrial sector is paying high financial costs.

The transmission of the monetary policy on lending rates did not improve over the last year, contributing to an unhealthy high banking spread. Such a large spread can have a dampening effect on economic growth by discouraging savings. This situation on the one hand has reduced the purchasing power of the common man, and discouraged investment activities on the other hand.

Now, tight monetary policy to control inflation would further hurt banks credit to private sector. Provision of less credit and borrowing will be the natural consequence of the present tight monetary policy, as decline in private sector borrowing during the last two years reflected a slowdown in economic and business sentiments, especially industrial and trading activities.

Acting president of Karachi Chamber of Commerce and Industry (KCCI), A. Abdullah Zaki regretted that no adequate measures were taken in the monetary policy to reduce cost of doing business and increase competitive edge of our products in global market.

He called for slashing down mark-up rate as well as export re-finance rate. In this respect, he gave example of Japan where lending rate ranged between two to three per cent

He, however, welcomed the measures to meet the expected challenges and risks such as carry forward of monetary stress generated from capital inflows; sizeable demand pressures emanating from fiscal and external imbalances and impact of supply side factors (food inflation, oil prices etc.).

The measure of retirement of borrowing of Rs6.23 billion by the government to SBP, capping quarterly ceiling on budget borrowing from SBP and adopting a more balanced domestic debt strategy to bridge budget deficit from long-term financing sources would help check demand pull inflation and help curb government tendency to borrow lavishly from SBP to meet its budgetary requirement.

Korangi Association of Trade and Industry (KATI) chairman Masood Naqi said 2006-2007 witnessed a monetary growth of 19.3 per cent as against the target of 13.46 per cent which was a negative indication and it led to inflation. The new target of 13.7 per cent is optimistic if it is achieved by the SBP.

This high growth was the actual cause of monetary inflation but the SBP held food prices as real cause of higher inflation, he said.

The higher lending rates could lead to low supply of credit to the private sector and it could result in low economic growth and manufacturing sector could face a difficult situation.