Prime Minister Shehbaz Sharif used his address during his visit to ring the opening bell of the Pakistan Stock Exchange to say that he thought the interest rate should be round 6 percent, Once upon a time, what he thought would have been implemented, but ever since the IMF got independence for the State Bank of Pakistan, he too, like the rest of the country, must wait the decision of the SBP’s Monetary Policy Committee. However, it is inevitable that the MPC, or at least its members, will keep this statement at the back of their minds when they next meet to fix the interest rate. Mr Sharif might not get the slashing he wants, but there should be another deep cut, which has seen the benchmark interest rate come down from a high of 22 percent to the current 13 percent.
Mr Sharif has spoken about a rate cut before the MPC meeting for the first time, though he has expressed jubilation at the cuts it has made afterwards. Perhaps his tongue was loosened by his audience, primarily of business people, his original constituency. Business leaders have already called for a rate cut, but no one has called for as deep a cut. Mr Sharif’s visit may not have had the effect intended, for the KSE100 index went down nearly 2000 points, mainly because of the restriction on income tax return nonfliers trading. The market had expected Mr Sharif to remove that return, but he did not, preaching a little homily on the necessity of honoring commitments to the IMF. That may be necessary, but it should not be at the cost of meeting the genuine needs of the people. For example, by shooting down the proposal that the 18 percent sales tax levied on petrol be removed, the IMF has shown it has no real concern with inflation or fitness. It should be noted that petrol is subject to sales tax when it is imported, so that means the petrol price includes sales tax twice. Removing either tax would be fair, but it would also prevent the government from meeting its revenue targets, which the FBR has already missed.
Mr Sharif must realise that the interest rate will only be cut if inflation remains low. That does not depend purely on domestic effort, which Mr Sharif is trying to control, but on such externalities as the price of oil, which is inching upwards internationally. Inflation was what Mr Sharif campaigned on, he must not lose sight of it.
