ISLAMABAD: Business leaders and economists are calling on the State Bank of Pakistan (SBP) to drastically reduce interest rates to single digits. They argue that slashing rates by 300 basis points will reignite economic growth and end the current stagnation.
Majyd Aziz, former president of the Karachi Chamber of Commerce and Industry (KCCI), emphasized that while previous monetary policies were tough, recent rate cuts have offered much-needed relief. “The last three months saw positive changes. Inflation is under control, and demand for private-sector financing has dropped,” he noted. He added that the SBP now has the opportunity to further review its policy to support economic recovery.
Aziz believes a significant rate cut would boost optimism across sectors. Lower financing costs would encourage industries to invest in machinery, expand operations, and increase raw material inventories. He stressed that high interest rates make investments less viable, stifling growth and delaying projects.
Aziz also urged banks to shift their focus from government lending to private-sector support. “Economic growth hinges on private-sector investment, supported by proactive policies, affordable financing, and a conducive environment,” he said. He added, “One clear solution is cutting interest rates further.”
Muhammad Saleem Memon, President of the Hyderabad Chamber of Small Traders and Small Industry (HCSTSI), echoed these sentiments. He praised the central bank for recent rate cuts but stressed the need for further reductions. “Aligning our monetary policy with global trends will create a better environment for recovery and job creation,” he said.
Memon pointed out that Pakistan’s borrowing costs remain far higher than competitors like India and Bangladesh, whose rates are around 6%. The prolonged period of high interest rates, peaking at 22%, crippled small traders and manufacturers, with many businesses forced into survival mode.
Leaders from the business community, including KCCI President Muhammad Jawed Bilwani and Policy Research and Advisory Council (PRAC) Chairman Mohammad Younus Dagha, are also urging the SBP to take aggressive steps. They recently advised the central bank to cut the policy rate by at least 300 basis points in the next Monetary Policy Committee (MPC) meeting.
They highlighted that inflation fell to 6.9% in September 2024, marking two consecutive months of single-digit inflation. With commodity prices stabilizing, they argue that the SBP must capitalize on this trend by slashing rates to ease pressure on businesses.
Bilwani emphasized that the private sector, particularly large-scale manufacturing, is struggling under the current interest rates. Pakistan’s Large-Scale Manufacturing Index (LSMI) dropped by 19.2% from January to July 2024, reflecting the severe impact of high borrowing costs and reduced access to credit.
Economists and traders alike are now looking to the SBP to make a decisive move that could bring much-needed relief to Pakistan’s business community and stimulate broader economic growth.
