KARACHI: The business community anticipates a series of economic and energy crises due to an unprecedentedfallin the rupee`s value against the dollar and an interest rate of 20 per cent, the highest in 27 years.

They fear that these two events would push the economy to a point of `no return` and may even put the country`s survival at stake.

Mohammad Tariq Yousuf, President of the Karachi Chamber of Commerce and Industry (KCCI), said a fall of Rs 18.89 in the rupee`s value in one day would have a negative impact on the economy.

An increase in the policy rate by 300 basis points is `totally unacceptable` as it will discourage borrowing. `Businesses are not even in a position to make 25pc profit nowadays. Who is going to borrow at such exorbitant rates,` he questioned.Tariq said a strong dollar, along with high energy tariffs, had raised the cost of doing business, making Pakistani goods uncompetitive in the international market and unaffordable for the common man at home.

As the impact of a rising dollar is usually passed onto endusers, it is visible in the shape of exorbitantly high prices of petroleum products and the skyrocketing energy tariffs.

The rupee plunge has reached a level where it has become unbearable, raising the cost of doing business and pushing inflation. `It is crucial to review the strategy being pursued by the regulator,` Tariq Yousuf, the KCCI chief, said.

`Due to the absence of an effective price control mechanism, an abnormal surge has been seen in the prices of almost all essential commodities. This must be controlled to bring relief to an already overburdened, inflation-stricken common man.He said the emerging situation must be handled very carefully. Otherwise, the excessive devaluation would prove detrimental for the economy, raise unemployment and make the inflation genie uncontrollable, he added.

Ehsan Malik, CEO of the Pakistan Business Council (PBC), said there was no point in repeating that the policy rate hike would control inflation or strengthen the rupee.

`Our inflation is supply push and devaluation linked. The interest hike will not control it.

Nor does it induce people to hold their savings in rupees instead of converting them into dollars,` he said.

High cost of borrowing Mr Malik said since only the formal sector borrows from banks, the policy rate hike would hurt it. `The higher cost of borrowing will lead to loan defaults, undermining the banking system.Riazuddin, who heads the SITE Association of Industry, said after a jump in the interest rate to 20pc, the KIBOR market would surge to 22-23pc, making it impossible for businesses to borrow from banks, Besides hitting the local trade and industry, it would render the export sector uncompetitive, Mr Riazuddin said.

He fears a total collapse of the economy as it is already in a negative growth mode as against last year`s growth rate of six per cent.

Riazuddin further said that in addition to today`s increase in interest rates, the earlier kneejerk actions taken by the government, such as additional taxation measures and increase in energy rates, have all been anti-business and anti-growth.

He urged the government and the State Bank not to succumb to the pressure of foreign lenders.

Faraz-ur-Rehman, President of the Korangi Association ofTrade and Industry (KATI), said there were rumours that the IMF wanted to see the dollar rate equal to the Afghan border rate. `If the government accepts the demand, a weakening rupee and the soaring interest rate will bring the economy to the brink of collapse.

The KATI chief said the current situation would bring a storm of unemployment and a flood of inflation. Investors would prefer to keep money in banks while the poor would suffer from unemployment, he added.

Sohail Nisar, senior vice chairman of Pakistan Yarn Merchants Association, said interest rate at 20pc was unsustainable as it would lead to a severe shortage of capital for trade and industry.

He urged the State Bank to go for other solutions instead of raising the interest rate to control inflation and make it easy to get loans so that industry flourishes and jobs are created.