ISLAMABAD: Pakistan’s business community has expressed mixed reactions to the State Bank of Pakistan’s (SBP) decision to reduce the benchmark policy rate by 200 basis points (bps). While welcoming the cut announced on Monday, they called it inadequate, stressing that a single-digit rate is crucial to accelerating economic and business activities.
The SBP’s latest Monetary Policy Statement lowered the key interest rate to 13%, a two-and-a-half-year low. This brings the total reduction over the past six months to 900bps.
Despite this substantial decline, prominent trade bodies voiced dissatisfaction, highlighting that the reduction falls short of their demands for a 400-500bps cut.
In a statement, Federation of Pakistan Chambers of Commerce & Industry (FPCCI) President Atif Ikram Sheikh termed the move “insufficient” and urged the SBP to further reduce the policy rate to single digits. “Lower interest rates are essential to stimulate economic activities, which in turn would boost exports,” he said.
Similarly, Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Jawed Bilwani argued that the rate remains excessively high. “Ideally, the policy rate should be between 5-7%, aligning with other regional economies like India (6.5%), Vietnam (4.5%), and Bangladesh (10%),” the KCCI statement emphasized. Bilwani also warned that prolonged tight monetary policies were driving up borrowing costs, severely impacting the manufacturing sector.
Sheikh Umer Rehan, Chairman of the Pakistan Vanaspati Manufacturers Association (PVMA), welcomed the 200bps cut but expressed hope that the SBP would bring rates into single digits in its next monetary policy review. “The cumulative 9 percentage point reduction in recent months has already reactivated some industries, encouraging investments,” he noted.
Rehan added that sectors such as cooking oil and textiles had begun ramping up production capacities, anticipating broader economic recovery.
The business community’s dissatisfaction reflects broader concerns about Pakistan’s high borrowing costs, which continue to stifle growth and hinder the manufacturing and export sectors. With regional competitors maintaining significantly lower policy rates, local businesses remain at a disadvantage.
Economic observers are now closely monitoring the SBP’s next monetary policy statement, expected in late January or early February 2025, for signs of further rate reductions to bolster economic momentum.
