KARACHI: Business and industrial community have expressed that the policy rate cuts announced by Central Bank in monetary policy meetings are too little, the business, industry and trade community was expecting higher and substantive cuts in the key policy rate.
President of the Karachi Chamber of Commerce and Industry (KCCI), Muhammad Jawed Bilwani, while commenting on the State Bank’s decision to reduce the interest rate by 2.5 percent, bringing it down to 15 percent, stated that while KCCI had anticipated a more substantial reduction of at least 5 percent, the actual cut of 2.5 percent was inadequate and did not align with the declining trend in inflation, which has now fallen to single digit.
“With a reduction of 250 basis points, the key policy rate now stands at 15 percent, which remains too high. It is essential for the rate to be reduced more aggressively, ideally to between 5 and 7 percent, in line with many other countries in the region and around the world”, he added in a statement issued on Monday.
President Bilwani emphasized that the business community wants to see interest rate dropping to single digit, as this would encourage borrowing and promote business expansion by lowering the cost of doing business, ultimately benefiting the economy. He acknowledged the State Bank of Pakistan for continuing to ease its monetary policy, noting that this was the fourth consecutive cut, reducing the interest rate from 22 percent to 15 percent.
However, he urged for a more significant reduction to stimulate economic growth and alleviate the financial burden on businesses and consumers. He pointed out that the tight monetary policy implemented by the State Bank of Pakistan (SBP) had led to exceptionally high borrowing costs, causing substantial harm to the economy, particularly affecting the manufacturing sector.
Therefore, a significant cut has become necessary. “We appreciate this fourth consecutive reduction in the interest rate and hope to see this trend continue, with the SBP reducing the policy rate by at least 500 basis points in its next review,” he added.
Bilwani noted that while inflation has decreased to single digit, this was not primarily due to the SBP’s tight monetary policy, but rather due to administrative measures taken by the government, improved agricultural production and descending international oil prices. He also mentioned that the stability of the rupee was a key factor in easing inflation, as significant quantities of commodities are regularly imported into Pakistan. “It is well-known that the devaluation of the rupee directly triggers inflation.”
Jawed Bilwani expressed hope for further reductions in the interest rate, which would be welcomed by the entire business community, as they have been adversely affected by the excessively high cost of doing business.
The Korangi Association of Trade and Industry (KATI) President Junaid Naqi welcomed the State Bank of Pakistan’s recent 2.5% interest rate cut, calling it a positive step but emphasizing the need for further reductions to bring the rate down to single digits for sustainable economic growth. Naqi highlighted that the current high-interest rate has been counterproductive, slowing economic activity and limiting industrial capital availability, and urged that a lower policy rate would help revitalize the economy.
Naqi addressed concerns about the potential for increased imports following interest rate cuts, which could pressure the currency and trade balance. He recommended that the government take proactive steps to control imports to protect the rupee’s value.
Although the rupee has remained stable, Naqi noted that an undervalued currency isn’t beneficial for exporters. He advocated for a balanced approach that aligns currency value with economic fundamentals, growth targets, and foreign exchange reserves, helping ensure a fair playing field for exporters.
The KATI President concluded by urging the government to adopt a long-term policy to bolster both the rupee’s value and interest rate environment, which he believes would bring long-term advantages to the industry, especially the export sector.
Business community leaders, including President of the United Business Group (UBG) Zubair Tufail, President of the Karachi Chamber of Commerce and Industry (KCCI) Javed Bilwani, President of NNI Faisal Maiz Khan, and President of KATI Junaid Naqi, have declared the State Bank of Pakistan’s decision to reduce the interest rate by 2.5% as contrary to facts.
President of the United Business Group (UBG) Zubair Tufail stated that given the level of inflation that has decreased, and which the State Bank itself acknowledges, a mere 2.5% cut in the interest rate holds little significance. He emphasized that the business community desires to see interest rates in single digits, which would certainly encourage borrowing and promote expansion due to reduced business costs, ultimately benefiting the economy. He argued that the interest rate should have been reduced to 5%, and a further reduction of 5% should have been implemented in the next monetary policy to bring it to single digits. He criticized the Monetary Policy Committee for failing to do so, stating that this has discouraged economic growth.
Faisal Maiz Khan, President of the North Karachi Association of Trade and Industry, acknowledged the 2.5% cut in interest rates as a positive step, but stressed that it needed to be reduced to 4% or 5%. He pointed out the urgent need for further cuts to lower business costs, which are already high and adversely affecting industry and exports.
Copyright Business Recorder, 2024