ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Anxiety over delay in monetary policy
Publication Date : 26-08-2013
The delay in announcement of monetary policy has created uneasiness among the banks and money market experts as confusion prevails over possible change in the policy rate.
The State Bank normally announces the monetary policy in second or third week of August but this time there is still no sign of unveiling of the policy.
When contacted, the central bank’s spokesman on Friday said he did not have any information about the policy or when it would be announced.
Banking sources said the policy is expected on 27th of this month, however, they were not clear about the future interest rate.
Banks are willing to see a higher interest rate as they depend largely on investment in the government papers but they said the pro investment economists were strongly against any increase in the interest rate.
“We believe the interest rate should be increased since the inflation jumped to 8.3 per cent in July reaching close to almost equal to policy interest rate that is 9 per cent,” a senior banker said.
Bankers invested most of the money for three months’ papers on Wednesday auction. Out of 25.4 billion Pakistani rupee, the banks’ investments were 25.3 billion Pakistani rupee for 3 months.
The rest was invested for six months. It indicated that banks were not taking risk for investing in long-term papers, hoping for interest rate hike in the monetary policy.
Bankers said since the government is negotiating with the International Montary Fund for loans, it requires to improve the fiscal position. Having a fiscal deficit of 8.2 per cent in FY13, there is a clear indication that the Fund would demand to improve this condition by increasing interest rate and reducing the fiscal gap.
The SBP’s decision to cut interest by 50 basis points in the last monetary policy was both criticised and appreciated. Among those who praised the move were the trade and industry, and the investors saw a boost in the economic growth.
However, no change has been witnessed yet in the investment pattern despite 9pc interest rate. Private sector remained out of bank borrowing and only working capital was borrowed. The net borrowing by the private sector at the end of the previous fiscal was almost zero.
“Rate cut is not the only requirement for investors,” said Aamir Aziz, a manufacturer and exporter of textile based-products. “The business-friendly environment that was brutally tarnished by the terrorists during the last five years was practically the biggest impediment for investment.”
He said that the interest rate should remain unchanged as it would help the investors to come forward.