KARACHI Business community has termed two percent cut in interest rate as disappointed despite widespread demand to reduce at least by 5 percent
President FPCCI Atif Ikram Shaikh welcoming two percent reduction in interest rate, it is not enough in present conditions. He said that they had demanded a 5% reduction in interest rate as inflation in the country has fallen to 4.9%, a 78-months low. He said after a significant reduction in the rate of inflation, the policy rate should be reduced to single digits without wasting time.
Sheikh said 9% interest rate cut in 5 consecutive meetings after June 2024 is welcome. He said with increase in foreign exchange reserves and current account surplus, economic indicators are positive. He said a single-digit policy rate will boost economic growth and business activity on the country
Senior Vice President FPCCI Saqib Fayyaz Magoon said Increase in business activities will increase exports. He said business community will fully support all government decisions taken for economic improvement.
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 percent, bringing it down to 13 percent, stated that while KCCI and almost the entire business community of Pakistan was demanding minimum reduction of 400 to 500 basis points, but the SBP has reduced it meagrely which was disappointing.
“With a reduction of 200 basis points, the key policy rate now stands at 13 percent, which still 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 while referring to policy rates in India, Vietnam, and Bangladesh where the interest rate stands at 6.5 percent, 4.5 percent and 10 percent, respectively.
Bilwani emphasised that the business community wants to see the interest rate dropping to a 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 fifth consecutive cut, reducing the interest rate from 22 percent to 13 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 hope that the declining trend in the interest rate continues, with 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 a single digit, this was not primarily due to the SBP’s tight monetary policy, but rather due to global declining trend in commodities prices, as well as, international oil prices along with administrative measures taken by the government and improved agricultural production. He 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.
President of the Korangi Association of Trade and Industry (KATI) Junaid Naqi termed the State Bank of Pakistan’s recent 2% interest rate cut inadequate.
He emphasised that inflation, now at 4.9%— lowest in six years— warrants a much larger reduction in policy rates to single digit. He argued that the improving economic indicators, including the strengthening of foreign exchange reserves, the appreciating rupee, and a current account surplus, create a strong case for deeper cuts to support economic growth.
Naqi noted that inflation had declined faster than the State Bank’s projections, dropping from 7.2% to 4.9%. He stated that the business community had consistently advocated for single-digit interest rates to help spur industrial growth and boost economic activity. He highlighted that the current high policy rate has significantly slowed economic momentum and constrained industrial activities. A further reduction in interest rates, he argued, is essential to enable industries to access affordable credit, address capital shortages, and stimulate industrial expansion.
The KATI president stressed that a lower interest rate regime would not only revive local industries but also provide much-needed relief to the export sector, helping it compete more effectively in global markets. He urged policymakers to adopt a forward-looking approach to interest rates to unlock the full potential of Pakistan’s industrial and economic sectors.
Ateeq ur Rehman, economic & financial analyst, said that SBP has cut its key policy rate by 200 basis points basis points to 13 per cent from 15pc amid demands for a major rate cut. It is a good sign and highly appreciable, as step by step and gradual declining makes sense.
Copyright Business Recorder, 2024