Karachi: The business, industrial, and trade community of Pakistan has expressed strong dissatisfaction with the State Bank of Pakistan’s (SBP) decision to keep the policy rate unchanged during its recent Monetary Policy Committee (MPC) meeting.
Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), voiced concerns over the central bank’s monetary policy, which continues to maintain an excessively high premium over core inflation. As per the government’s own data, core inflation stood at 1.5% in February 2024, while the policy rate remains significantly high at 12.0%, reflecting an excessive spread of 1,050 basis points.
The FPCCI, following consultations with stakeholders from various industrial sectors, had urged the SBP to implement an immediate and substantial policy rate cut of 500 basis points in a single stroke. This demand aligns with the broader objectives of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision for economic expansion and export-led growth. The business community asserts that an excessively high policy rate stifles investment and economic activity, hindering Pakistan’s progress toward sustainable development.
The FPCCI forecasts that core inflation will remain within the 1-3% range for March and April 2025 and throughout the remainder of the fiscal year. Given these projections, Mr. Sheikh emphasized that the policy rate should be reduced to the range of 3-4% by the close of FY25 to foster economic stability and business competitiveness.
Additionally, Mr. Sheikh pointed out that international oil prices are expected to remain stable in the coming months, which is a critical factor in mitigating inflationary pressures in Pakistan. With an ample global oil supply and surplus production capacity among OPEC+ nations, crude oil prices are anticipated to stay in the lower $70s per barrel. Given these conditions, Pakistan has a unique opportunity to shift away from its contractionary monetary stance and adopt policies that stimulate economic growth by significantly reducing the policy rate.
Pakistan Chemicals & Dyes Merchants Association (PCDMA)
Similarly, Mr. Salim Valimuhammad, Chairman of the Pakistan Chemicals & Dyes Merchants Association (PCDMA), rejected the SBP’s decision to maintain the interest rate at 12%, calling for a substantial reduction. He expressed disappointment, stating that despite improving economic conditions and declining inflation, the central bank has failed to adjust its monetary policy accordingly. “We had hoped for a significant reduction in the interest rate in this meeting, but the decision to maintain it at 12% has shattered the business community’s expectations,” he lamented.
Mr. Valimuhammad warned that the failure to lower the policy rate would not only discourage new investments but also hinder economic activity. He urged the government to ensure that businesses can access affordable financing to foster commercial expansion and drive economic progress. Furthermore, he called upon the SBP Governor to implement a gradual reduction in interest rates to a single-digit level, which would facilitate easier access to loans and support business growth.
SITE Association of Industry
Echoing similar sentiments, Mr. Ahmed Azim Alvi, President of the SITE Association of Industry Karachi, described the SBP’s decision as disappointing. He remarked that the business community had expected a minimum reduction of 2% in the policy rate, given the steady decline in inflation. However, the central bank’s inaction has deepened concerns among industrialists and entrepreneurs.
Mr. Alvi emphasized that with inflation steadily declining and macroeconomic indicators showing signs of improvement, the SBP should have acted decisively to ease monetary policy constraints. He criticized the Monetary Policy Committee for disregarding repeated calls from the business community for a lower policy rate, which he deemed essential for promoting industrial expansion and national economic progress.
In conclusion, Mr. Alvi appealed to the SBP to align its monetary policy with the government’s vision for industrial and export growth. He urged the central bank to gradually reduce the policy rate to a single-digit level, ensuring affordable financing for businesses and fostering economic activity. A strategic reduction in interest rates would serve as a catalyst for investment, job creation, and sustainable economic expansion, reinforcing Pakistan’s standing in regional and global markets.
