Pakistan’s Inflation Hits a 9-Year Low—Is SBP’s Policy Justified?
- High Interest Rates Hurting Businesses and Exports, Warns FPCCI
- Urgent Policy Reforms Needed to Boost Investment and Economic Growth
Karachi: The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has expressed strong dissatisfaction with the State Bank of Pakistan’s (SBP) current monetary policy, calling for a significant interest rate reduction in the upcoming Monetary Policy Committee (MPC) meeting on March 10, 2025.
Atif Ikram Sheikh, President of FPCCI, criticized the SBP’s decision to lower the interest rate by only 100 basis points in its last MPC meeting on January 27. He emphasized that inflation in Pakistan has hit a nine-year low, making the current policy rate of 12.0% excessively high compared to core inflation.
Citing official statistics, Mr. Sheikh highlighted that inflation stood at just 1.5% in February 2025 and 2.4% in January 2025. Yet, the prevailing policy rate reflects a massive premium of 1,050 basis points over core inflation. This, he argued, is stifling economic growth, making it imperative for the SBP to adopt a more business-friendly stance.
FPCCI Demands 500 Basis Points Rate Cut
After thorough consultations with key stakeholders across various industries, FPCCI has urged for an immediate and one-time reduction of 500 basis points in the upcoming MPC meeting. The proposed rate cut aligns with the Special Investment Facilitation Council’s (SIFC) strategy and Prime Minister’s vision to boost economic growth and exports.
Industry estimates suggest that core inflation will remain within 1–3% during Q4FY25 (April–June 2025), driven by declining prices and easing inflationary pressures. Additionally, global oil prices are projected to stay stable, with the Organization of the Petroleum Exporting Countries (OPEC) maintaining sufficient supply. According to Mr. Sheikh, this provides a strong basis for a substantial rate cut, removing barriers to investment and business expansion.
High Cost of Doing Business Hindering Growth
Mr. Sheikh reiterated that the cost and ease of doing business in Pakistan are significantly worse than in competing export markets. He stressed that sustained inflationary declines necessitate policy adjustments to enable industries and exporters to regain competitiveness.
Supporting this stance, FPCCI Senior Vice President (SVP) Saquib Fayyaz Magoon underscored the urgency of bringing the interest rate down to single digits. He argued that such a move would make capital more affordable for exporters, helping Pakistan regain its footing in regional and global markets. Additionally, he called on the government to fulfill its promise of rationalizing electricity tariffs for industries.
A Call for Pro-Growth Monetary Policy
The FPCCI leadership believes that the time is ripe for the SBP to shift from a contractionary monetary policy to one that supports economic expansion. With inflation at historic lows and oil prices expected to remain stable, there is little justification for maintaining high interest rates.
As Pakistan approaches its next MPC meeting, business leaders are hopeful that policymakers will recognize the urgent need for a substantial rate cut—one that could be the key to unlocking economic growth, enhancing exports, and making Pakistan’s industries more competitive on the global stage.