KARACHI, Aug 7: The Federation Pakistan Chambers of Commerce and Industry (FPCCI) has strongly reacted to the demand of commercial banks for further raise in interest rate.

FPCCI president Tanvir Sheikh in a statement issued here on Thursday said that 7.08 per cent banking spread in Pakistan is the highest in the region. During the last couple of years, banking sector earned significant mark-up income on the basis of high spreads.

He stated that the State Bank had already increased its discount rate by 250 basis points in less than a quarter, which is a very unusual practice for any central bank in the world.

He further said that Reserve Bank of India (RBI) had been following the tight monetary policy for the last two years to control inflation. But the way of using such policy is quite different as compared to SBP. The RBI did not raise its discount rate from 6 per cent during last year but only changed the cash reserve requirement (CRR), statutory liquidity requirement

(SLR) and repo rate whereas SBP has fully focused on raising discount rate. As a result of this Indian investment is rising sharply while growth of manufacturing sector in Pakistan is suffering from liquidity problem.

“The cost of doing business in our country is rising which discourages the investors to invest in Pakistan because investment is sensitive to interest rate hikes,” he added. In these circumstances, the demand of commercial banks to further increase the interest rate will further increase the cost of production, which would made our products uncompetitive both in national and international markets.

Mr. Sheikh disagreed with the argument of commercial banks that due to high inflation banks have to increase their interest rate to facilitate the depositors.

He said the deposit rates offered to individuals remained abysmally low and emphasised on the need for shifting benefits to depositors, he said adding that commercial banks must reduce their spread. He also demanded that SBP must direct the commercial banks to narrow down the gap between lending and deposit rates to provide better return to the depositors.—APP