Markup rate to remain at present level till inflation comes down: Governor SBP

[Naveed Yaseen]

LAHORE (February 05 2009): State Bank of Pakistan Governor Salim Raza has said that the mark-up rate will remain at the present level till inflation comes down, and that it is making all-out efforts to stabilise the economy, and soon the target would be achieved. He was giving a briefing on the new monetary policy to the business community and politicians at Governor House here on Wednesday.

Punjab Governor Salman Taseer was also present on the occasion. However, Salim said, the State Bank was making efforts to reduce the mark-up rate for industrial sector, so that both local and international investments could increase in the country. He said that after a lapsing of six months, and viewing the national economic scenario, the SBP used to announce the monetary policy.

He said now it has been decided that the updating of the monetary policy would be done after three months (quarterly). He said that deficit in national budget and inflation were causes of all problems of the economy. "We do not have the habit of saving, and recovery of taxes were very limited," he added.

According to him, Pakistan's GDP growth rate had declined from 8 percent to 3.5 percent in the past one year. "In the world recession, 3.5 growth rate is also a blessing, because a number of countries are more affected by the international recession these days. Although the prices of essential items have not come down, but its pace of increase was under control," he added.

The SBP Governor said that to balance the budget deficit, the previous government took extensive loans from commercial banks. He said that on the other side consumer financing under easy terms and industrial loans were given on large scale, due to which deposit rates of banks went down by 7 percent, and inflation went up in the country. "The present government has undertaken stiff monetary policy to correct things. At present, inflation rate in the country is 14.8 percent. If the rate of interest was not increased then surplus liquidity of government capital security would have been up by more than 10 percent."

Moreover, he said, in order to consolidate national economy, it was imperative to meet the Prime Minister's target of 40 percent decrease in government expenses, at all cost. "For this reduction, non-development expenses were decreased and reduction of POL products subsidies was essential," he added. He said that for achieving this, one has to rethink on development outlays of projects and increase in the rates of taxes.

He observed that taxes were received in such limited terms in the country that the national budget was constantly in deficit. He pointed out that the people could receive the benefits of development only when the government has ample resources for development projects. "Under the new monetary policy, the government, instead of commercial banks, would utilise cooperate bond market and equity market for financial resources. Bank deposit resources are integral to economic system and we would use them to supplement the national economy," he said.

The SBP Governor expressed relief that the current account deficit was decreasing each month on a fast pace. He said in the world market there was reduction in the prices of crude oil, steel and bronze; so the engineering sector of Pakistan should benefit from it.

He said that the way the government has given loans on low mark-up to textile industry to put it on track, a similar relief package would be given to the engineering industry. "The growth rate of pharmaceutical industry was excellent. Due to self-sufficiency in medicines at national level, the market of multinationals has gone down. Hence, the government has benefited in foreign exchange due to this, and thus local pharmaceutical industry has the right to government support," he added.

He assured the businessmen that their suggestions would be incorporated in the monetary policy, which would be announced in the end April. Punjab Minister Riaz Ahmad, Zaheerudin Khan, Lahore Chamber of Commerce and Industries President Muzaffer Ali, Punjab PPP president Aftab, General Secretary Samiullah, Women Chamber of Commerce and Industry president Dr Shehla Javed Akram, Aptma chairman Akbar Sheikh, Muhammad Mansha, Almas Haider and others were also present at the briefing.

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