Govt to pay heavy price for borrowing after rate hike

The interest rate hike will cost heavily to the government as it will have to re-price the Rs5 trillion maturity of treasury bills and Pakistan Investment Bonds (PIBs) in the next three months. The State Bank of Pakistan (SBP) has increased its policy rate by 100 basis points to 16 per cent to tame inflation but the other aspects of higher interest rates were not considered for serious thought. The higher interest rate has already annoyed the trade and industry which rejected this surprise move calling it an attempt to increase the cost of doing business. They warned that the increased cost of doing business will seriously hamper economic growth. The government estimates that the economy could expand around 2pc in FY23 against about 6pc in FY22. The economic downtrend has many reasons primarily the effort to slash imports to save dollars and increase interest rates to cool down demand. At the same time, the unprecedented inflationary pressures have wiped out all hopes for domestic investments as the cost of borrowing has gone beyond the expected boundaries. The latest hike takes SBP’s policy rate to a 24-year high slightly lower than the 16.5pc of 1998.