KARACHI, Dec 2: The SBP will not yield to the pressure of business tycoons to bring lending interest rates down, as tight monetary policy is critical to curb inflationary pressures in the economy. The private sector in Pakistan needs to learn to be competitive instead of looking for excuses to qualify for a free ride.

State Bank Governor Dr Shamshad Akhtar said this in her press conference at the launch of Annual Report 2005-06. She clearly stated that no reversal of lending rate policy was on cards as she did not see any need for such a move. She said that the current lending rates posed no threat to economic expansion as credit offtake is sufficiently high to feed the growth momentum in the economy.

Explaining her position on tight demand management, she said that lending rate debates in Pakistan were focussed on nominal interest rates alone which sometimes proved to be misleading. The real lending interest rates in Pakistan, she said, were lower than most countries in the region.

The real lending interest rates are derived after discounting the inflation rate from the nominal interest rate. Current lending interest rates are in the range of 11-13 per cent and inflation rate is about nine per cent. To arrive at the real lending interest rate, inflation rate (nine per cent) is subtracted from nominal average lending interest rate (11-12 per cent). Pakistan’s real lending interest rate in 2006 is 2.2 per cent.

The comment in the report on the current monetary stance is: “The degree of monetary tightening adopted has successfully helped the government achieve its targeted FY06 CPI inflation rate, which has fallen by 1.4 percentage points relative to its peak level in June 2005.”

Dr Akhtar said that price and interest rate stability reflected the degree of maturity of an economy. In Pakistan, the trend of lending interest rate has been too volatile. In 1999, the real lending interest rate was 10.5 per cent. It started falling down, and in 2000 it was 9.2 per cent; in 2001 it went up again to touch 10 per cent mark. In 2002, it came down to 9.3 per cent, fell to 5.7 in 2003. In 2004, the real interest rate on lending in Pakistan was negative -0.3 per cent, in 2004 it was 0.4 per cent. In 2005 it was 1.1 and today it is 2.2 per cent which is still on thpe lower side.

In India the real lending interest rate is 5.7 per cent and in the US it is 4.3 per cent.