KARACHI: Businessmen said on Monday the decision by the State Bank of Pakistan (SBP) to raise the key interest rate along with export refinance and long-term financing rates will hurt investment.
Karachi Chamber of Commerce and Industry (KCCI) president Muhammad Idrees said the business community “rejects” the unfair hike, which will increase the cost of doing business. He said Karachi’s share in exports has already slipped from 54 per cent to somewhere around 50pc.
In view of rising inflation, the SBP has been raising the interest rate without indicating when it’ll be revised downwards. “If it’s so necessary to raise the interest rate, the SBP must also publicise when exactly it’ll be revised down so that the businessmen and industrialists can accordingly devise their future plans,” he added.
Terming it an unwise move, Mr Idrees said the business community is already bearing the impact of a regulatory duty that the government recently imposed to contain imports.
The KCCI chief urged Prime Minister Shehbaz Sharif and Finance Minister Miftah Ismail to intervene and issue directives to the SBP for an immediate reduction in the interest rate. Borrowing at such a high rate is not feasible for any type of business, he said.
Pakistan Apparel Forum Chairman Jawed Bilwani said the interest rate increase will discourage industrialisation. “How will businessmen invest at such a high interest rate?” He said a few big industrialists take advantage of export refinance and long-term financing schemes while small-scale industrialists cannot even dream of benefitting from these.
However, Mr Bilwani said textile exporters are a bit excited about a huge number of orders that they have for the next six months. However, anxiety prevails among foreign buyers who fear whether Pakistani exporters will be able to make shipments under a tough business environment following the hike in the interest rate and the rates for export refinance and long-term financing.
Lucky Motor Corporation Ltd CEO Asif Rizvi said auto financing by banks will plunge massively in coming months as customers will find it hard to purchase vehicles at 17-18pc.
He said the current boom in sales and auto financing is because of back orders. The fresh hike in the interest rate will only discourage auto buyers, he said. The rising value of the dollar, which is touching Rs200.93 in the interbank market, will further jack up car prices and damage future sales.
The auto industry will face four kinds of challenges going forward, including a possible increase in prices due to the declining value of the rupee against the dollar, interest rate hike, political uncertainty and economic instability. “These factors usually hurt sentiments of consumers who delay their decision to buy new vehicles,” he added.
As per the SBP data, auto financing at the end of April soared to Rs367 billion, showing a jump of 25pc year-on-year and 0.9pc month-on-month.
Mehran Commercial Enterprises Director Mashood Ali Khan said the SBP had to increase the interest rate to control inflation. However, the assemblers are likely to further push up vehicle prices owing to the continuous depreciation.
“The auto sector will see the negative impact of depreciation and the interest rate rise on the sales in the second half of 2022. New bookings are set to face a downward trend,” he said.
Published in Dawn,May 24th, 2022