FPCCI has expressed disappointment over SBP’s decision to maintain high interest rates despite declining inflation, calling for an immediate rate cut to support economic growth.
KARACHI: Pakistan’s business, industry, and trade community has expressed disappointment over the State Bank of Pakistan’s (SBP) decision to maintain its policy rate, despite a significant decline in inflation. Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), criticized the decision, stating that the monetary policy remains excessively restrictive, hindering economic growth and business competitiveness.
Policy Rate Discrepancy Sparks Concern
According to Mr. Sheikh, the government’s statistics indicate that inflation stood at just 1.5% in February 2024, whereas the policy rate remains at 12.0%. This reflects an alarming premium of 1,050 basis points over core inflation, making Pakistan’s monetary policy one of the most stringent in the region.
“Despite a substantial decline in inflation, the SBP has failed to rationalize its monetary policy. This decision negatively impacts investment, trade, and industrial growth,” Mr. Sheikh asserted.
FPCCI Demands Immediate Rate Cut
Following extensive deliberations across various industries and sectors, FPCCI demanded an immediate and single-stroke rate cut of 500 basis points during the recent Monetary Policy Committee (MPC) meeting. The proposed cut aligns with the vision of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s strategy for economic and export growth.
Mr. Sheikh further emphasized that core inflation is expected to remain between 1% – 3% in the coming months, which justifies bringing down the key policy rate to 3% – 4% by the end of FY25.
International Oil Prices Support Rate Reduction
Explaining the macroeconomic landscape, Mr. Sheikh highlighted that global oil prices are projected to remain stable, a key factor in reducing inflationary pressure. “With ample oil supply and spare capacity within OPEC+ countries, prices are expected to stay in the lower $70s per barrel, eliminating any justification for maintaining contractionary policies,” he elaborated.
Need for Pro-Business Policies
The FPCCI president reiterated that the high cost of doing business, lack of access to affordable finance, and restrictive monetary policies are pushing Pakistan’s industries to a competitive disadvantage. “The continuous decline in inflation presents a historic opportunity to shift towards a growth-oriented policy framework,” he stressed.
Call for Single-Digit Interest Rates
Echoing FPCCI’s concerns, Senior Vice President Saquib Fayyaz Magoon urged the government to bring interest rates down to single digits immediately. “Reducing the cost of capital is essential to making Pakistani exporters competitive in regional and global markets,” he stated.
He also emphasized the need to rationalize electricity tariffs and ensure uninterrupted gas supply, warning that persistent energy shortages would undermine any efforts to boost exports and promote import substitution.
The business community now awaits a decisive policy shift from the authorities, emphasizing the urgency of lowering interest rates to support sustainable economic growth.