Tight monetary policy has been hurting the overall growth of economy and SBP should cut interest rate to single digit level in coming Monetary Policy Review as the double digit mark up will remain an important stumbling block in promoting business activities.

This was stressed by businessmen in a meeting at Islamabad Chamber of Commerce & Industry chaired by Zahid Maqbool, President ICCI.
Zahid Maqbool said that along with high utility tariffs, & power shutdown, tight monetary policy remained a key factor in excessively enhancing the cost of doing business making our exports uncompetitive and retarding the growth of business & economic activities.

He said regressive monetary policy made credit more costly for businesses due to which private investment has declined sufficiently. It also affected industry and manufacturing sector  as Large-scale Manufacturing (LSM) sector grew only 0.67 per cent during July-October 2009-10.
He said it was the result of tight monetary policy that credit growth to private sector collapsed from 16.8 percent in FY 2008 to just 0.7 percent in FY 2009 while the past record shows that private credit had grown at the annual average rate of 24 percent between FY02-FY08.

He said even from July 1, 2009 to January 3, 2010 credit to businesses stood at Rs109.24 billion compared to Rs181.12 billion in the corresponding period of last fiscal year, depicting a 40 per cent decline.

He said due to this situation, all major sectors of the economy including textile, agriculture, construction, transport and communications etc. spent less on expansion compared to last fiscal year and emphasized that government should now adopt a soft monetary stance by reducing mark up rate to below 10 percent which will facilitate investment and growth in the economy.

The businessmen said that the credit supply cut not only demonstrated damaging impact on the economic growth, it caused shutdown of business units and vastly slashed jobs in the country. They said government should adopt a lenient monetary policy in the larger national interest so that private sector could play more effective role in strengthening the economy.

Zahid Maqbool said that Pakistani banks remained flooded with ample liquidity, but they preferred to place their liquidity with the government securities instead of lending soft loans to businesses, which is not a right approach at a time when the country needs to mitigate the adverse effects of recession on trade and production activities by reducing interest rate, enhancing trade financing facilities and other expansionary measures.