KARACHI, Sept 6: State Bank Governor Dr Ishrat Husain has said that the monetary policy is being tightened to check inflation which will help in bringing interest rates down.

Addressing the members of the Karachi Chamber of Commerce and Industry (KCCI) here on Tuesday, the SBP governor also announced that the auction of Pakistan Investment Bonds (PIBs) was likely to be held in a month, after one year break.

He said that the healthy competition among the banks was driving the interest rates, and ruled out the impression that the central bank was directing the banks to lower their lending rates.

“If the depositors will not get handsome returns on their investment, why should they bring their savings to the banks, they will naturally look to other avenues like real estate, dollarization and speculation”, the SBP chief added.

He further said that under the controlled regime these banks were serving hardly to a million people, but now they were catering to the needs of more than four million and efforts were still afoot to make these banks accessible to the lower and lower middle class by introducing micro financing.

He said that the duty-free import of food items would bring domestic prices of food essentials down. The lower prices would help in checking inflation and consequently the interest rates would also fall, he explained.

He said that in the past only one bank was extending loans to the residents of the rural areas, but with a major policy shift every bank was now offering loans to the rural areas. “Even the house financing has been allowed in these areas,” he added.

He maintained that the banks had extended Rs108 billion to the rural areas, benefiting 1.1 million households that increased the demand for fertilizer, wheat seeds, cottonseeds and other farm inputs.

“This provision of funds resulted in increase of cotton production from 10 million bales to 15 million bales and wheat production rose from 19 million tons to 22 million tons.

About the micro financing, the SBP governor said that the lower classes were ready to pay interest as high as 20-22 per cent, but the businessmen were demanding to bring them down. “Don’t cut the hand who is feeding you, otherwise, the depositors will direct their funds to other sectors for better returns”, the governor repeated.

He maintained that the privatization of KESC would help improve the system. He informed that Hubco lines to Karachi would be operative by June 2006 to mitigate the power shortage.—APP