Tuesday, April 7, 2020  | 13 Shaaban, 1441
Samaa TV
Facebook Twitter Youtube
HOME > Money

Finding jobs to remain difficult as interest rates remain stagnant

SAMAA | - Posted: Jan 27, 2020 | Last Updated: 2 months ago
SAMAA |
Posted: Jan 27, 2020 | Last Updated: 2 months ago
Finding jobs to remain difficult as interest rates remain stagnant

Photo: Online

Finding jobs will remain a challenge as the State Bank of Pakistan is likely to keep interest rates unchanged at 13.25% in its next monetary policy announcement on Tuesday.

A majority of analysts polled by SAMAA Digital say they don’t expect the central bank to cut interest rates because inflation is expected to stay on the higher side. The SBP will continue a tight monetary policy and wait for the prices (of essential goods and services) to come down before reducing its policy rate, they say.

Controlling inflation and ensuring economic stability are two of the SBP’s core functions. To achieve these goals, the central bank uses, among other tools, its policy rate. It is the rate at which commercial banks borrow money from the central bank’s discount window.

The SBP’s policy rate, revised every two months, affects every interest rate in the market. In other words, higher policy rate means commercial banks will charge even more, making borrowing more expensive for individuals, businesses and the government. Higher interest rates make loans expensive. Businesses, which rely on bank financing, stop doing new projects, the government cuts spending on development projects, and consumers stop availing auto finance, home loan or even credit cards. In a nut shell, this shrinks economic activity and slows down job creation.

Faced with twin challenges of trade loss and fiscal deficit, the central bank started raising its benchmark interest rates in a major push towards economic stability. The SBP has nearly doubled the rate to its current level, up from 7.5% as of September 2018. But slamming the brakes on economic growth has hurt businesses.

Large scale manufacturing, the backbone our economy, has taken the biggest hit. For example, the textile sector is the biggest private sector borrower of banks and employs 15% of our labour force, the third largest by any sector. Since the sector relies on bank financing, higher interest rates slowed down both its growth and ability to create jobs.

We are unlikely to come out of this economic slump any time soon as some analysts expect the SBP will maintain the current rate till June 2020. One of them said he won’t even rule out a rate hike.

The recent increase in flour and sugar prices is likely to push inflation rate for January to around 13.5%, slightly higher than the SBP’s interest rate. This, according to Adnan Sami of Pak Kuwait Investment Company, will be against the agreement with the IMF, which requires interest rate to be higher than the inflation rate. One can’t rule out a hike of 0.25% in that case, he said.

“We are not working on a policy. There is no policy. The government is not only not delivering on its commitments, it just keeps changing lanes, leaving us all confused and thus hopeless,” said All Pakistan Business Forum President Syed Maaz Mehmood. “With energy prices going up, our cost of production and manufacturing are already high, and there come high interest rates that make cost of borrowing further out of reach. Everyone is frustrated,” he said, adding, “The government needs to tell the IMF when its feet hurt or the latter will keep pushing Pakistan in their designed shoe.”

Sources in the real estate sector have a similar view.

“We expect the government to bring down the policy rate and create monetary flexibility for the investors,” All Pakistan Real Estate Association Chairman Ejaz Shah said. “With interest rates so high, the investor would want to park his money in the banks to reap its benefits and no one will want to bear the onus of a real business in such an economy,” he said.

The country is trapped in a boom and bust cycle where no growth period lasts more than four years. High economic growth is followed by a contraction every few years. This is because our growth is led by imports, which become unsustainable beyond a certain point because our exports do not earn the capital (dollars) to sustain that growth.

FaceBook WhatsApp
 
HOME  
 
 
RELATED STORIES
 

Tell us what you think:

Your email address will not be published.

FaceBook WhatsApp
 

 
 
 
 
 
 
MOST READ
MOST READ
 
 
 
 
 
About Us   |   Anchor Profiles   |   Online Advertising   |   Contact Us   |   Feedback   |   Apps   |   FAQs
Facebook   |   Twitter   |   Instagram   |   YouTube   |   WhatsApp