Too little, too late.

Byline: Dilawar Hussain

THE surprise policy rate cut of 100 basis points to seven per cent by the State Bank of Pakistan (SBP) last week was greeted warmly by the stock market on Friday when the benchmark index climbed 230 points and settled at 33,939. Investors picked up shares in leveraged sectors, hoping for growth in their earnings.

Most analysts at major brokerage houses also peddled the virtues of the rate cut. But people in the thick of the real business world generally waived it off as a non-event.

Ahmed Chinoy, elected director of the Pakistan Stock Exchange (PSX), was not exactly jubilant over the rate cut. He said such largesse just five days before the end of the financial year will have no impact on upcoming company results.

Regarding the stock market, he said it offered an average return of 7-8pc, which was subject to a high capital gains tax rate of 15pc. 'What was the fun in putting money in a risky investment class for a minuscule return?' he asked.

Shares provided a wafer-thin return of 0.1pc, with the KSE-100 index crawling to 33,939 points on June 26 from 33,902 on June 28, 2019

That was the thought that possibly crossed the minds of people with investible funds and even small savers. Between June 28 last year and June 26, equities provided a wafer-thin return of 0.1pc with the KSE-100 index crawling to 33,939 points from 33,902. The return on treasury bills dropped to 7.4pc on June 26 from 13.1pc on June 28, 2019. The yield on Defence Savings Certificates declined to 8.1pc from 13pc while bank deposits yielded 5.1pc as opposed to 5.7pc a year ago. The return on Pakistan Investment Bonds (PIBs) collapsed to 8.8pc from 13.7pc in June 2019.

The exception was the return on the dollar, which worked out at 4.8pc as the exchange rate climbed to Rs167.70 from Rs160.10 a year ago. Only gold glittered as it provided an incredible 25.1pc gains with its price reaching $1,764 an ounce from $1,409 a year ago.

Mr Chinoy, who is also the chairman the Pakistan Cloth Merchants' Association, contended that entrepreneurs had been struggling with the average interest rate of 11-12pc. 'Only 30pc of the favoured clients are offered financing by banks and that too at 2-2.5pc above the (policy) rate,' he said. 'The rest of the 70pc industrialists finance their businesses through their own sources,' which is why a flip-flop on the policy rate has little impact on business at large.

Mr Chinoy said interest rates have to be dragged down to 2-3pc...

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