23 August, 2014 / Shawwal 26, 1435

Cut in interest rate

Published Nov 09, 2012 03:33am

THE State Bank of Pakistan has hastened to further reduce the recently lowered discount rate of 10.5 per cent to 10 per cent, a fact that clearly reflects on the aggravating condition of our economy. Since discount rate is directly linked with export refinance allocated to exporters, it would evidently benefit the exporters but at the same time allow the financial institutions to cut down the interest rate allowed on saving schemes and deposits.

This counter-effect has been conspicuously noted in the cut-down on the interest rate on savings scheme whereby pensioners would be made to suffer as some of their income would be eaten up by the present reduction in the discount rate. It is noteworthy that the target of the exporters who had availed themselves of low-interest export refinance was relaxed some years ago to one on one instead of 2.4 to one. In other words, instead of meeting the target of exporting 2.4 times, the exporters now have to export the same amount as borrowed under the facility.

This indeed is a great relaxation to the exporting industry and, coupled with the reduced export refinance rate, the exporters should be having their golden days.

But things seem to be different. Coupled with gas and electricity crisis, the cost of production of export items has increased whereas in some cases the entire amount borrowed under the low interest export refinance is not employed by the borrowers for the purpose it was obtained and is frittered away in non-productive investments of varied nature.

All this reflects on the condition of the industry and our exports. While sanctioning low-interest export refinance loans, banks should assure that the loan is being used for the right purpose.

Unless this is done, the export industry will not prosper despite further relaxation of interest rate. At the same time this reduction in the interest rate ought not be done at the cost of cuts on the share of the pensioners whose livelihood depends solely on their savings lodged in government savings schemes.

MAZHAR BUTT                    Karachi

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Comments (2) (Closed)

Nov 09, 2012 04:38am
Interest Sood must be completely banned.Its still very very high 10%.Islamic republic of Pakistan with such high interest rates?In UK/US they offer 0.25% interest rates.
Nov 09, 2012 04:57pm
Yeah but then there is little inflation and devaluation over there in uk/usa. Need to keep interest rates in line with both inflation and devaluation.