KARACHI, July 23: Bank rates are set to go further up as State Bank of Pakistan prepares itself to give another “tight monetary policy” by the end of this month even though the previous all such policies, including the latest intervention at the fag-end of 2007-08 pushing up 150 basis points failed to contain inflation or maintain stability in exchange value of the rupee.
“It is inevitable,” a senior business leader observed when asked whether the next monetary policy would maintain tight stance and if the interest rates would go further up. The gentleman is a government nominee on the Economic Advisory Council and is convinced that in the given scenario, the increase in interest rate is inevitable to contain the inflation within manageable limits.
After announcing the six-monthly monetary policy in late January 2008, and the subsequent developments that caused unprecedented economic turmoil in the world and also hit hard Pakistan, SBP Governor Dr. Shamshad Akhtar intervened again in April-May last to announce a series of measures from further pushing up bank interest rates to squeezing extra liquidity from market.
These steps, however, could not stop from inflation ballooning to double figures and a steep fall in rupee exchange value to hit the historic low of Rs74 for a dollar. While the poorest of the poor were left nothing with them to lose the richest suffered unprecedented loss, now being estimated at around Rs50 billion.
As many as 100 rich business groups of the country, including top textile tycoons had hedged their loans with dollars. For long they complained against rising bank interest rates after the year 2005. It was pushing up their production cost.
In 2005 and onwards, former prime minister Shaukat Aziz and also the then SBP governor Dr Ishrat Husain advised all such businessmen to hedge their loans under a scheme of the central bank.
An almost 15 per cent devaluation of the rupee witnessed during 2007-08 despite three monetary policies, which pushed up interest rates close to 15 and 16 per