KARACHI—The Governor,the State Bank of Pakistan, Dr.Ishrat Husain Tuesday said that the time has come to tighten the monetary policy to control the inflation that would help bring the interest rates down. “The interest rates would continue to fluctuate under the influence of the market forces”, he remarked while addressing the members of the Karachi Chamber of Commerce and Industry at Chamber premises.
Responding to a query, he also announced that the auction of Pakistan Investment Bonds is expected to be held in a month or so after one year. He said the time has changed now and the healthy competition among the banks drive the rate of interest, ruling out any possibility of the SBP directing the banks to lower the interest rates. “ If the depositors would not get enough returns, why they should bring their funds to banks, they will divert to real estate, dollarisation and speculation”, he said. The banks under the controlled regime were serving hardly a million people of this country but now they are serving 4 million people and efforts were still afoot to make them accessible to the lower and lower middle class through micro financing.
He said that the import of food items at zero rate would increase their supply in the market and bring prices down. The lower prices would help bring the inflation down and consequently the interest rates would fall, he explained. He said earlier only one bank was extending loans to the rural areas, where 60 % population of the country reside but the change in the policies turned the situation and now every bank is extending loans to the rural areas. Even the house financing has been allowed in the rural areas. He maintained that the banks had extended 108 billion rupees loan to the rural areas, benefiting 1.1 million households that increased the demand for fertilizer, wheat seeds, cottonseeds and other farm inputs. This provision of funds resulted in increase of cotton production from 10 million bales to 15 million bales and wheat production inflated from 19 million metric tones to 22 million metric tones.
He said that 90 % of the population would be benefited if Agriculture and SME sector were given due importance and focus. About the micro financing he said the lower classes were ready to pay interest rates as high as 20-22 % but the businessmen continue to demand to bring them down. “Don’t cut the hand who is feeding you, otherwise, the depositors will direct their funds to other sectors for better returns”, the governor repeated.