KARACHI, Dec 14: The latest cut in the interest rate which brought down the rate to a single digit of 9.5 per cent after five years failed to attract support of the business community and analysts. Some representatives of the business community opposed the cut of 50 basis points and said that the decision was political rather than monetary and was due to coming general elections.

The industrialists said that the discount rate cut has negative impact more than its positive side for industrialists, particularly in the wake of fast erosion of rupee value against the dollar.

“There should be no cut in the interest rate. It will further devalue local currency increasing the cost of import and prompting foreign buyers to give a cut in product’s price to adjust appreciation of dollar,” said Iqbal Parekh, former chairman of SITE Association.

The industrialists were frustrated with 3.3 per cent devaluation of rupee since July since buyers have been asking them to provide additional benefit due to dollar appreciation.

However, some exporters said devaluation could attract more buyers in future but expressed concern that cost of production would increase due to rupee devaluation.

“The idea to spur growth in the ailing economy with higher supply of cheaper money is not bad but we have been watching the developed economies not showing signs of growth despite almost zero per cent interest rate,” said Aamir Aziz, an exporter of textile-based finished goods.

Importers and suppliers of Chinese products, like generators, cameras for security purposes, electronic goods, said the cost of imported products would go higher with the devaluation of rupee.

“If the discount rate cut further weakens the rupee, prices of imported Chinese products would go higher and damage the market,” said Nishat Ahmed, CEO of Nishat Associates.

The company supplies electronic goods, including security cameras.

Analysts also found the decision difficult to digest at this stage of fiscal pressure mounting over the economy despite low inflation.

“It was difficult decision for central bankers considering the declining rupee.

However, taking a decision in line with market expectations will have no affect on money and stock market,” said Mohammad Sohail, CEO of Topline Securities.

He was of the view that foreign exchange reserves trend will dictate monetary policy more than inflation.

The reserves have been declining fast due to massive debt repayments to IMF and wide trade deficit.

The State Bank on Thursday issued a circular related to discount rate and announced that the SBP overnight reverse repo (ceiling) rate has been reduced from 10pc to 9.50pc.

The SBP overnight repo facility would be available at 6.50pc per annum. This will serve as floor for the interest rate corridor.

“The floor and ceiling levels for the interest rate corridor are 6.50pc and 9.50pc respectively (width of 300bps),” said the SBP.