Will State Bank Maintain Interest Rate Today?

Academics Insist on Rate Cut

Academics insist on rate cut

Against further hikes in the central bank’s benchmark interest rate, academics are calling for cuts to provide liquidity to companies. The ongoing interest rate hike has increased the number of interest payments on the country’s debt which continues to grow. Interest rates also remain a catalyst for domestic inflation growth.

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“Financing available to producers will decrease as interest rates increase,” said Dr. Atiqur Rehman, Associate Professor at the Kashmir Institute of Economics. He offered his views on Ziauddin University’s (ZU’s) 15th interactive dialogue series, titled “Political Tariffs and Rising Costs of Debt Services,” through a scaling meeting convened by ZU, according to a press release published on Friday. The central bank had previously increased its key interest rate for 11 months (September 2021 to July 2022) by 800 basis points to currently 15%.

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Domestic debt was Rs. 16,400 billion at the time of the previous government’s last budget in April 2018 and the government provided Rs. 1,391 billion for interest payments. He stressed that when the next government presented its first budget in April 2019, domestic debt increased by 14.2%, which should lead to a corresponding increase in the markup payment, instead the markup increased by 82%. He explained that the reason for the sharp rise in markup payment was the “interest rate hike” from 5.75% to 12.25% on April 19.

The pandemic caused premiums to drop from 9% to 7% the following year. “Therefore, a 25 percent increase in debt only results in a 4 percent increase in premiums (same year’s payments),” said Dr. Atiq.

“Given the damage from the floods, they should lower interest rates and show that they want to help the community,” he added.

Academics insist on rate cut