Business community welcomes 100bps cut in policy rate

LAHORE: Leading businessmen and industrialists have welcomed the State Bank of Pakistan’s decision to reduce the country’s policy rate by 100 basis points to 7pc. 

Talking to Profit on Thursday, All Pakistan Textile Mills Association Patron-in-Chief Gohar Ejaz lauded the prime minister and his economic team for bringing down the rate of inflation in the country, which helped reduce the interest rate from 13.25pc to 7pc in the last 90 days.  

“The biggest beneficiary is the government with 75pc of the money or Rs15 trillion in the banking sector being invested in government securities. The domestic commerce and production industry, which has borrowed Rs4 trillion, would be next, followed by exports with Rs1 trillion borrowing,” Ejaz said.

He, however, stressed the need for Pakistan to become regionally competitive in all aspects to exports.

Ejaz maintained that controlled energy prices, interest rates and the reimposition of the zero-rating regime for export sectors were necessary steps to ensure exports’ enhancement. “Regional interest rate [on average] is 4pc and we have to bring it down to the same levels by next quarter.” 

Meanwhile, Chainstore Association of Pakistan (CAP) Vice Chairman Wasif Butt said that continuous reduction in policy rate over the past few months was a “positive and necessary step” taken by the SBP to facilitate businesses suffering from the Covid-led crisis. 

“With the demand-led inflation a memory of the distant past and retail sales plunging across all sectors except for essential goods, inflation will fall further in the coming days, which will provide more room for the SBP to reduce the policy rate to below 5pc.” 

He claimed that SBP was the only government entity that was providing support to businesses during the Covid-19 crisis. 

“However, as 90pc of the retail sector does not have any access to formal financing, the entire sector is looking towards the government for support through fiscal, taxation and policy measures, which have all been grossly lacking,” he stated. “Unless there is equally aggressive progress on these fronts in the near future, the retail sector, which has already started facing defaults and bankruptcies, may collapse completely.” 

Butt stated that although the retail sector was the second-largest employer in the country after agriculture, it has very little access to formal financing. “The sector sees SBP’s rate cut decision as positive, but it is insufficient for the retail sector’s revival,” he remarked. 

Among other business leaders, Pakistan Association of Large Steel Producers (PALSP) Secretary General Syed Wajid Iqbal Bukhari said that the move was in the right direction “but ideally it should have been reduced to 5pc”. 

Shahjahan Malik, Chairman of the Rice Exporters Association of Pakistan (REAP), said that the policy cut was expected as the GDP growth was negative. “The central bank’s decision to cut the policy rate by 1pc is good for everyone (all sectors) as it reduces the cost of doing business. It will also encourage businessmen to take risks and initiate new projects,” he added.

Maple Leaf Cement Factory Limited Chief Executive Officer (CEO) Sayeed Tariq Saigol said the industry “greatly welcomes this timely reduction in the interest rate”, adding that it was a much-needed initiative to spur demand and give businesses some breathing space in the wake of Covid-19. 

“I’m personally impressed by the data-driven approach of the central bank and I am optimistic that they will continue to take prudent measures in the face of the current economic challenges,” Saigol said.

Moreover, Pak Suzuki Motor Company Limited (PSMCL) spokesperson Shafiq Ahmed Shaikh said the decision would help the country’s economy and businesses to sustain the virus-led slowdown. “It would have been better if they (govt) had locked the interest rate at 4pc for at least the next 12 months.”