LAHORE: Atif Ikram Sheikh, President FPCCI, has said that the policy rate cut announced on Monday is too less, too late – as the business community was expecting higher and more substantive cut in the key policy rate of the State Bank of Pakistan vis-a-vis decline in core inflation.
It is pertinent to note that core inflation has come down to 11.8 percent in May 2024; which is the lowest in the 30-month period, he added.
The FPCCI president made it clear that the interest rate should come down to 15 percent to enable Pakistani exporters to compete in the regional and international export markets through reducing the cost of capital substantially. This step should be accompanied with the fulfillment of the government’s promise to rationalise electricity tariff for the industry, he added.
Atif Ikram Sheikh maintained consumer prices are categorically showing a declining trend as they fell by 3.2 percent in May 2024 compared to a decrease of 0.4 percent in April 2024 as per Pakistan Bureau of Statistics (PBS). It is now overdue to provide respite to the business community in their access to finance from commercial banks through effectively and appropriately cutting the key policy rate, he added.
Atif Ikram Sheikh questioned the seriousness of government on behalf of the entire business community of Pakistan, in bringing transparency and consultation in the economic policymaking; and, has reiterated his stance that the government should provide answers to the two sets of questions for businesses to plan their year ahead: (i) what are the measures that are being undertaken to obtain the new IMF programme and how would they affect cost of doing business in Pakistan; (ii) what steps will be taken after the signing of IMF programme to stabilize the economy and how and when the government plans to take the business community into confidence on these measures.
The FPCCI chief proposed that to promote price stability, The Chamber emphasised that the SBP needs to break the inflation rate into cost-pushed and demand-pulled. It is recommended that the SBP should target core inflation; non-food non-energy (NFNE); for operational guidance.
Saquib Fayyaz Magoon, SVP FPCCI, said that SBP should focus on core inflation rather than general inflation on an immediate basis as these exclude the most volatile components of the basket. The government must ensure the effectiveness of price control measures through vigilant actions against hoarding and malpractices.
Magoon explained that despite the progressive and major hikes in the policy rates from 9.75 percent to 22 percent over a period 6 quarters in 2022 and 2023, general inflation remained stubbornly-high and didn’t respond to the policy rate.
Saquib Fayyaz Magoon stressed that despite the successful completion of the IMF Stand-by Agreement (IMF-SBA) and 22 percent policy rate, Pakistan remains overwhelmed with issues dwindling exports and economic instability. This phenomenon well-establishes the fact that the government needs to employ other policy tools to tame the economic volatility.
Copyright Business Recorder, 2024