ISLAMABAD: The business community has expressed mixed reactions following the State Bank of Pakistan’s (SBP) decision to keep the policy rate unchanged at 12% on Monday.
The move was a surprise to many market analysts who had expected the central bank to reduce the key interest rate further after a cumulative cut of 10% over the past 10 months.
In a statement released after the SBP’s Monetary Policy Committee (MPC) announcement, the president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Atif Ikram Sheikh, expressed disappointment on behalf of the business, industry, and trade communities. He emphasized that despite a 113-month low inflation rate of 1.5% in February 2024, the SBP decided to keep the policy rate unchanged, resulting in a real interest rate of 10.5%.
Sheikh explained that after discussions across various sectors, the FPCCI had called for an immediate 500-basis point cut in the policy rate. He further argued that with core inflation expected to stay between 1% and 3% for March and April 2025, the SBP should reduce the key rate to 3% to 4% by the end of the fiscal year.
FPCCI’s senior vice president, Saquib Fayyaz Magoon, also stressed the need for the key interest rate to be reduced to single digits. He highlighted that this would help Pakistani exporters compete in regional and international markets by lowering the cost of capital. Additionally, he called for the government to honor its commitments to rationalize electricity tariffs for industries and address gas supply shortages.
On the other hand, the Pakistan Business Council (PBC) CEO, Ehsan Malik, supported the SBP’s decision to maintain the policy rate at 12%. Malik argued that a further rate cut could have led to a future rate hike due to expected inflationary pressures. He pointed out that with the 12-month forward inflation rate projected to average 8% and import volumes rising faster than export earnings, the decision to keep the rate steady was prudent. He also warned that reducing the policy rate could put further pressure on the Pakistani rupee and exacerbate the country’s foreign exchange reserve challenges.
