Pakistan’s central bank likely to keep interest rate unchanged

A logo of the State Bank of Pakistan is pictured on a reception desk at the head office in Karachi on July 16, 2019. (REUTERS/File)
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Updated 22 November 2020

Pakistan’s central bank likely to keep interest rate unchanged

  • SBP slashed its key policy rate from 13.25 percent to 7 percent between March 17 and June 25 to help the economy hit by COVID-19
  • Industrialists are calling for a further reduction to 5 percent to support the growth momentum and industrialization

KARACHI: The State Bank of Pakistan (SBP) is expected to keep its key interest rate unchanged at 7 percent amid economic recovery, experts say, as the central bank is scheduled to announce its monetary policy for the next two months on Monday.
The SBP slashed its key policy rate from 13.25 percent to 7 percent between March 17 and June 25 to support the economy hit by the coronavirus outbreak.  
"The central bank is expected to keep the interest rate unchanged because the COVID situation prevails and we believe that the government will not like to increase rates amid the economic recovery," Samiullah Tariq, head of research at Pakistan Kuwait Investment, told Arab News on Sunday.
According to a poll conducted by Topline Securities, majority of top-notch financial market participants also believe the rate will remain the same.
"Out of 72 responses received, 87.5 percent are of the view that rate will remain unchanged, 7 percent voted for a rate increase of 25 bps and above,” Muhammad Sohail, chief executive of Topline Securities said.
Another brokerage firm, Arif Habib Limited (AHL), also predicts that the monetary stance would not change.  
“We expect the SBP to keep policy rates unchanged at 7 percent in the upcoming monetary policy statement," AHL said in a report, forecasting that inflation is likely to ease in coming months.
The central bank forecasts that the average inflation rate would be between 7 percent and 9 percent during the current fiscal year.  
Pakistani industrialists, however, are calling for a further reduction of interest to 5 percent, saying it is necessary for the growth momentum and industrialization in the country.   
"Our economy was on a ventilator before that coronavirus outbreak and after the situation turned worst the unemployment has substantially increased and now the government is taking long-term measures and it seems that the economic situation is improving," Sheikh Sultan Rehman, vice president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), told Arab News.
"There are signs of economic recovery and to keep the momentum continue we demand that the interest should be reduced to 5 percent and gradually to around 3 percent for long-term growth," he said.   
Economists say that in the current global and domestic situation, monetary policy has to ensure that financing conditions remain favorable.
"An uncertain global recovery is pushing central banks to actively ensure that monetary policy remains geared to financing the whole economy. In addition, lower inflation has given room for near zero rates globally," said Dr. Khaqan Najeeb, former advisor at the Ministry of Finance.  
He added that with slowing growth and higher food inflation the task is complex for Pakistan.
The central bank expects that economic growth would be between 1.5 percent and 2.5 percent as compared with the negative growth of 0.4 percent recorded in the previous fiscal year. Pakistan had recorded negative growth for the first time since 1952.  
"Monetary policy has to ensure financing conditions remain extremely favorable. Beyond just lower funding costs it is crucial to recalibrate instruments to counteract the negative impact of funding measures for containment of the virus," Dr. Najeeb said.

Pakistan Steel Mills workers say will challenge mass layoffs in court

Updated 29 November 2020

Pakistan Steel Mills workers say will challenge mass layoffs in court

  • PSM management argues the company’s accumulated losses reached Rs212 billion ($1.33 billion) in June
  • The termination of 4,500 contracts is believed to be the biggest layoff from a single entity in Pakistan’s history

KARACHI: Pakistan Steel Mills (PSM) employees are going to challenge in court the company’s recent decision to terminate the contracts of thousands of workers, union representatives said on Sunday.

The management of the state-owned company on Friday handed letters of termination to some 4,500 employees, arguing that PSM’s accumulated losses had reached Rs212 billion ($1.33 billion) in June, when the government decided that 9,350 workers would have to be fired for the dysfunctional enterprise to be revived.
“PSM has terminated 4,500 employees in the first phase of government’s plan to lay off 9,350 employees ... The employees have refused to accept this termination they have registered protests and have decided to challenge this decision in court next week,” Mirza Maqsood, President of Voice of Pakistan Steel Officers Association, told Arab News.

Located 40 kilometers from Karachi, Pakistan’s largest industrial complex with a steel production capacity of 1.1 million tons has been dysfunctional for the past few years. Its operations were suspended in 2015.
“Neither the Company has funds to revive the Mills nor are funds available from any other source to revive the Steel Mill. In any case, revival of the mill would require, firstly massive investment and secondly, entail a period of at least two years,” reads a PSM termination letter seen by Arab News.
The layoff was defended by federal Industries and Production Minister Hammad Azhar, who on Saturday said the terminated employees would be given compensation of Rs2.3 million on average.

“Since the closure of the mill, the government has paid around Rs35 billion as salaries and Rs20 billion as arears to the employees,” he said.

The discharge of workers is said to be one of the biggest layoffs of employees from a single government entity in the country’s history. 
 Karamat Ali, executive director at Pakistan Institute of Labor Education & Research (PILER), said the PSM layoff in unprecedented.
“No such number of employees have ever been fired from a single government institution,” he said.
The decision was also opposed by the provincial government of Sindh, which vowed to support the affected employees. 
“This is wrong and injustice. They (the federal government) must adhere to their earlier stance and commitments of turning the state institutions around with the help of their champions. I am with the employees,” Sindh Labor Minister Saeed Ghani told Arab News.
Mumrez Khan, convener of a representative body of employees, pensioners, suppliers, dealers and contractors of PSM, said that no serious efforts have been made by the federal government to revive the mill, claiming that negligence had caused losses even higher than those cited by PSM management.

“The accumulated losses have swelled to $12 billion on the account of closure of plants, revenue to the government and imports of steel products,” he said.