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SBP seeks views on interest rate policy

KARACHI (November 18 2003): The State Bank of Pakistan (SBP) has started making assessment of its “Interest Rate Policy” and issued a number of questions to the stakeholders asking their opinions, comments and suggestions about the policy.

The SBP Central Directorate has issued questionnaires asking the business community and various stakeholders for their views about short-term and long-term consequences of the recent decline in lending rates.

The SBP also asked whether there was any relationship between the rate of inflation in the country and bank's lending rates.

Asking for suggestions, it asked the stakeholders as to what should be the minimum rate of return on deposits with banks and the rate of return on advances, if the inflation is 4 percent; opinions were also sought about the relationship between the rate of inflation in the country and banks' lending rates.

The State Bank says that since 1990s interest rates have been liberalised, and it is playing an important role in the management of financial and real sectors of the economy.

“In order to assess the reaction and views of various stakeholders regarding interest rate policy for our benefit, the State Bank is seeking the views of these stakeholders,” said a letter issued by the SBP to a business house.

Following is the questionnaire:

(i) In what form has the private/corporate sector taken advantage of the recent substantial decline in lending rates?

(ii) Did the private sector refinance old high cost bank credit with low interest rates prevailing now?

(iv) What is your view on the short-term and long-term consequences of the recent decline in lending rates? Do you think that the banks' present emphasis on lending for consumer durables and housing finance could adversely affect the bank lending for business and industry in future?

(v) In your view, whether there is any relationship between the rate of inflation in the country and the banks' lending rates? Keeping in view the present low inflation rates, are the current lending rates still high in your view?

(vi) Do you think that the current lending rates have promoted investment actively in the country? If so, how?

(vii) It is commonly believed that there is excess liquidity in the economy now-a-days. Why has the excess liquidity not led to inflation in the country? If inflation rate is about 4 percent, what in your opinion should be:

(a) minimum rate of return on one-year deposits with banks and (b) minimum rate of return on one-year advances.

(viii) The State Bank subsidised credit to agriculture, LMM (export), and export has been linked to Treasury Bills rates. Are you satisfied with this policy? If not, what alternative would you suggest?

(x) What is your view about the size of margin between the refinance rates charged by the State Bank and the rates charged to the ultimate borrowers in case of: Export finance, LMM (export), LMM (local sales) and agriculture credit (Zarai Taraqiati Bank Ltd and the Punjab Provincial Co-operative Bank).

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