The State Bank on Monday raised the rate on export financing, which reflects the SBP's policy to gradually increase the interest rate. "It has been decided that the rate of refinance under the Export Finance Scheme applicable for the month of February, will be 4 percent," said a circular issued by the State Bank. Earlier, the rate of refinance under the scheme was 3.5 percent for the month of January. Banks have been told to charge maximum 1.5 percent.

"The commercial banks will ensure that where financing facilities are extended by them to the exporters for availing refinance facilities under the Scheme, their maximum margin or spread does not exceed 1.5 percent," said the circular.

With the latest increase of 0.5 percent, the exporters would get the money under the scheme at 5.5 percent.

Exporters have been criticising for the increase in the rate of export financing, as it was an incentive for them to enhance exports.

Exporters said that at the time when the input cost has gone higher due to inflation, further increase in the rate of refinancing would only add to their difficulties.

"The cheaper money availability paid back to the country as the exporters became more competitive and earned more for the country with the rate of 10 percent increase in exports per year," said an exporter of textile goods.

"Now after WTO we are in a more competitive world market so the higher cost of money would certainly hit our exports target," he said.

Copyright Business Recorder, 2005