MULTAN, Nov 14: Economists and industrialists from the southern Punjab have given their mixed reaction over the increase in interest rate on bank loans.

Mushtaq Hussain Bokhari, an economist, said that the State Bank had taken this step to check the rapidly increasing inflation, but it would adversely affect the cost of production, because interest rate plays a major role in input cost.

“When the local business and country’s exports are facing a downward trend, this step would create more problems, and also result in increase in unemployment.”

Khawja Yousaf, former chairman, Multan Chamber of Commerce, said that industrial sector was already facing multiple problems. While the increase in electricity tariff and labour wages have already put an additional burden on the industrial sector, this decision would also affect the sector badly.

He said that when the whole world was facing a severe economic crisis and interest rates was being decreased, the government was creating problems for business community.

He said that after the increase in interest rate by the State Bank from 11 to 13 per cent, banks rate has gone up to 20 per cent from 18 per cent, while interest rate in the US is 1.5 per cent and in Japan, it is 0.5 per cent.

Iqbal Hassan, President, Multan Industrial State, said when Ishrat Hussain was the governor of the State Bank, he was of the view that inflation can be controlled only by increasing the production size and by setting up industries which help bring the production cost. But the present SBP governor, Shamshad Akhtar, believes that the inflation can be controlled by increasing the interest rate.

Iqbal Hassan said that SBP policies change with the change in its governorship.

He said that this step would have a negative impact on the business community while on the other hand, government high-ups were not ready to curtail their expenses.

Prof Dr Karamat Ali, Chairman, Economics Department, Bahawalpur Islamia University, said that the State Bank had taken this step under its monitory policy, and it was only a minor reform which would not make any major impact on country’s economy or on the business community.

He that economy could be improved by brining in structural changes in economic policies.

He said that the purpose behind the move to increase the interest rate was to encourage savings by giving more incentives to the people on their savings and discourage those who were taking loans.

He said that there was a need to decide either we were going to run our economy as a free market economy in which there would be no government interfere in financial market, or we would make our economic policies keeping in view the interests of nation and the country.