WITHIN the current year, it is the third time that the bank rate or discount rate has been curelly, hastily and intentionally raised from 10 to 15 per cent by the State Bank of Pakistan.

In defence of this decision, it has been argued by SBP authorties that if this decision had not been taken, inflation would have been out of control and crossed the limits.

But the statement is self-controdictory because of the fact that the State Bank itself has confirmed that the inflation rate has so far gone up to 25 per cent during the last four to five months when the decision of increase in the discount rate was taken.

Besides, due to increase in the lending rate, the cost of production has increased and the prices of commodities gone skyhigh.

The decision to increase the lending rate discouraged the investors from investing in productive projects, and thus they invested their money in purchasing dollars from the market.

As a result, the rupee devalued from Rs60 to Rs85 per dollar, showing an increase of 33 per cent in devaluation within six months.

The rupee devaluation has caused trade deficit totalling trillions of rupees as the import bill of our trade was about $16 billion higher than our export bill for the current year.

Therefore, it is predicted that Pakistan rupee will be further devalued up to Rs 100 a dollar within two months.

This will further increase burden on the trade deficit bill, pushing inflation further up and curtailing the purchasing power of the poor Pakistan.

Such rapid decisions of increase in the discount rate are evidence of the economic tsunami.

The nation remained prepared for the coming economic turmoil and make efforts to adopt austerity and work for 24 hours to produce more and more in order to avoid any economic ruin.

DR ALI AKBAR DHAKAN

Chairman, Sindh Development

Foundation

Karachi

(II)

A LOT hue and cry has been raised regarding the recent decision of the SBP to raise the interest rate by two per cent at a time when banks around the world are decreasing interest rates.

It is true that increasing interest rate at a time of recession can lead to problems but what we forget is that the government has been borrowing

heavily from the State Bank of Pakistan and this had left it with no choice but to increase the interest rates as otherwise inflation would rise significantly.

To put it simply, when the government borrows from the SBP, it just prints more money which can be catastrophic in the long run, the only way to control the negative effects of this action is to increase the interest rates.

As advised by the SBP time and again, the government needs to limit its borrowings so that it can tackle the current economic problem effectively.

SAAD SIDDIQUI

Karachi