ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has called for a significant reduction in interest rates, proposing a cut of 400 basis points to revitalize the economy and create fiscal space for public expenditures, as well as to ensure the survival and growth of critical industries.
The Monetary Policy Committee (MPC) is scheduled to meet on November 4, 2024, to deliberate on the discount rate.
The APTMA expressed grave concern over the persistently high interest rates, which remain at 17.5%. With inflation recorded at 6.9% in September 2024, this translates to a real interest rate of 10.6%, an unsustainable level given the current economic climate.
APTMA urges SBP’s MPC to cut interest rate by 400bps
The Association noted that inflation has steadily decreased since November 2023, underscoring the need for the MPC to realign its monetary policy to reflect ongoing economic realities and provide necessary relief to the struggling industrial sector.
According to the APTMA, as reported by the Pakistan Bureau of Statistics (PBS), inflation dropped to 11.1% in July 2024 and further to 6.9% in September 2024. Despite this notable decline, the MPC has been slow to adjust interest rates accordingly.
The high real interest rates are stifling economic activity, particularly for industries attempting to access capital and sustain operations.
The textile sector, a backbone of Pakistan’s economy and a key driver of exports and employment, has faced unsustainable borrowing costs over the past two years, resulting in significant liquidity constraints. In this challenging environment, the lack of affordable financing hampers businesses from securing working capital and making critical investments. If no other relief is possible, APTMA insists that the least that can be done is to bring interest rates down to manageable levels.
High real interest rates are deterring investment across key sectors, including textiles—Pakistan’s largest export-oriented industry. Without access to affordable financing, these industries cannot expand, innovate, or compete effectively in global markets. This not only jeopardizes export potential but also threatens the livelihood of millions of workers in the sector.
APTMA argues that the current monetary policy stance is misaligned with efforts to stimulate economic growth. The MPC’s priority should be fostering an environment conducive to recovery. With inflation significantly down, there is ample justification for a substantial reduction in interest rates. Such a move would relieve financial pressure on businesses, drive investment, enhance productivity, and generate employment.
In light of these factors, the APTMA strongly urged the MPC to take bold and decisive action by reducing interest rates by at least 400 basis points in the upcoming meeting. A sharp reduction is crucial to revitalizing the economy, creating fiscal space for public expenditures, and ensuring the survival and growth of critical industries.
The APTMA believes that a significant cut in interest rates is not merely a preference but a necessity for the nation’s economic stability and growth. The time has come for the MPC to align monetary policy with current inflationary trends and support the private sector in driving economic recovery.
Copyright Business Recorder, 2024