Pakistan Tycoon Calls for Interest Rate Cut to Spur Consumption
(Bloomberg) -- A top Pakistani industrialist is urging the nation’s central bank to lower interest rates, the highest in Asia, to spur consumption and investment in the economy.
There’s a case for the benchmark interest rate to drop by 50 basis points this month from the current level of 13.25%, said Arif Habib, chief executive of Arif Habib Corp. Ltd., a fertilizers-to-financial services conglomerate. He cited headline inflation that eased by more than two percentage points in February, and expectations for price-growth to slow further in March.
“The relief in inflation supports the case for decreasing interest rates,” Habib said in an interview in his office in Karachi, near the city’s busiest commercial port. “Cheaper loans will increase consumer demand.”
Habib’s call to lower borrowing costs comes as Pakistan’s economic growth is seen decelerating to 2.4% in the year to June -- the slowest pace in more than a decade. World Bank data show consumption growth slowed and investment contracted last fiscal year as authorities unveiled measures to stabilize the economy after a deficit blowout.
Those steps included Asia’s most aggressive interest-rate tightening, with the central bank raising its target policy rate nine times since January 2018 to 13.25% in July, and where it has held it since then. The nation also has witnessed multiple currency devaluations during that period.
The measures, partly to meet conditions set by an International Monetary Fund loan program, weighed on businesses and consumer demand, according to Habib.
“Projects faced cost overruns because of devaluation, and their viability is at risk because of high interest rate and low demand,” he said.
Arif Habib Corp., a 14-company conglomerate, almost quadrupled cement output and tripled its steel production capacity last year. But a slowing economy meant the group had to shut its old cement line as margins fell short of expectations.
“Without a rate cut, new investments in the pipeline would need to be deferred,” said Habib. It’s been “very challenging and difficult.”
©2020 Bloomberg L.P.