KARACHI, Aug 2: State Bank Governor Dr Shamshad Akhtar said on Thursday that the economy was under tremendous pressure and, therefore, it was necessary to follow a tight monetary policy to contain inflation, check widening imbalance of payments position and the current account deficit.

In a meeting with exporters and heads of credit departments of banks the governor was quoted to have said that the state of the economy was just like a pressure cooker, which could burst any time if necessary measures were not taken.

Sources privy to the meeting also quoted the Sate Bank governor to have agreed with a participant that most of the ills had been created by the policy makers in Islamabad, who should firstly control heavy borrowing, which was the main reason for high rate of inflation in the economy.

Dr Shamshad Akhtar said the State Bank had to maintain a tight monetary policy to control high inflation rate, which was presently above 10 per cent. She also expressed her concern over the widening imbalance of trade and the current account deficit.

However, exporters objected to the increase in discount rates and said this would increase the mark up rate and the industry would not be able to absorb this additional burden.

However, the governor defended the decision of increase in mark up rates and tight monetary policy and said it was necessary to contain high rate of inflation. Many participants from the leading private export houses opposed the move and said as to why only interest rates are being used to check high inflation rate, sources said.

They asked the State Bank governor to advise policy makers in Islamabad to reduce bank borrowing, which could also help a lot to curtail inflation in the country.

Exporters were also critical of the decision taken in the monetary policy announced by the State Bank on Tuesday directing the scheduled banks to dish out funds for concessionary export refinance.

In response the governor said that the scheduled banks could afford to give funds for export refinance scheme because they were earning between 8 to 43 per cent on deposits and this would not bring any harm to them, the participants of the meeting told Dawn.

However, it was finally decided that heads of all the scheduled banks and exporters would again meet the State Bank governor on Friday, and sort out some of the left-over issues and give final touches to the decisions and agreements.