Governor State Bank of Pakistan (SBP), Ashraf Mahmood Wathra is
scheduled to unveil Monetary Policy Decision at a press conference on Saturday.
There are mixed opinion of groups due to each having its own vested interest.
The commonsense is not likely to prevail as those responsible for making decision
are likely to take refuge behind external and internal dictate.
Based the economic indicators the SBP should announce reduction
in discount rate to: 1) facilitate private sector borrowing, a must for
accelerating GDP growth rate, 2) emulate the develop countries adamant at
easing monetary policy for combating prevailing global economic slowdown and 3)
reduce cost of borrowing, as the Government of Pakistan (GoP) remains the
biggest borrower.
Many economic analysts say that the rule of thumb that higher
rate of interest fuels inflation is hardly applicable on Pakistan. The country
suffers from cost pushed inflation. The factors like global prices of food and
energy products, cost of doing business, electrify and gas outages and above
all precarious law and order situation erodes competitiveness of local
manufacturers and exporters.
While there are expectations that the SBP will cut the discount
rate by 50 basis points, few cynics still believe that the central bank is likely
to opt for maintaining status quo. This perception is based on the mantra that
spreads of commercial banks are shrinking.
Since commercial banks are the biggest investors of Treasury
Bills, Pakistan Invest Bonds and Government of Pakistan Ijara Sukuk there is
pressure on the central bank not to cut the discount rate.
As against this sponsors of highly leveraged companies like sugar,
textile and cement (also enjoying access to power corridors) are putting
pressure on the government to reduce the discount rate. Business of the
companies belonging to the above stated sectors has thrived only because of the
crutches of the government support.
One may recall that the Government recently approved payment of
Rs13/kg subsidy, amounting to Rs6.5 billion on sugar export to facilitate mills
owned by the politicians (treasury as well as opposition members).
The retired persons and widows also wish that the central bank
should not cut the discount rate further as the return being paid to them by
the banks as well as on national savings schemes at present is negative keeping
in view the rate of inflation in the country.
