Karachi – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has called on the State Bank of Pakistan (SBP) to immediately reduce the key policy rate to 15%. This demand comes in response to what the FPCCI views as insufficient cuts in the policy rate over the last two monetary policy meetings.
FPCCI President Atif Ikram Sheikh criticized the SBP’s recent policy decisions, stating that the 150 basis points (bps) cut announced on June 10 and the subsequent 100 bps reduction on July 29 were inadequate. “The business, industry, and trade community was expecting more substantial cuts in the key policy rate,” he remarked, adding that the actions taken by the SBP have been “too little, too late.”
Sheikh highlighted that the expectations of the business community were driven by the substantial decline in core inflation. He pointed out that core inflation, which excludes food and energy prices and is a key measure of underlying inflation trends, has remained within the range of 11.8% to 12.6% for several months. “Given this stable core inflation, there is ample room for an immediate reduction in the policy rate,” he argued.
Cost of Doing Business and Export Competitiveness
Sheikh emphasized the challenges faced by Pakistani businesses in terms of the cost of doing business, ease of access to finance, and overall economic competitiveness. He argued that the current policy rate, which is significantly higher than the core inflation rate, places Pakistani exporters at a disadvantage in regional and international markets. “We cannot continue to have a monetary policy that is set at a huge premium to core inflation,” he said.
The FPCCI President called for an immediate reduction in the policy rate to 15% to alleviate some of the financial burdens on Pakistani exporters. He also urged the government to fulfill its promise of rationalizing electricity tariffs for the industry and to renegotiate power purchase agreements (PPAs) with independent power producers (IPPs).
Need for Transparent Economic Policymaking
Sheikh also questioned the government’s commitment to transparency and consultation in economic policymaking. On behalf of the business community, he demanded clarity on two critical issues: the measures being taken to secure a new International Monetary Fund (IMF) program and their impact on the cost of doing business in Pakistan, and the steps that will be implemented after securing the IMF program to stabilize the economy. He stressed the importance of involving the business community in these discussions to enable better planning for the future.
Focus on Core Inflation and Price Stability
The FPCCI also proposed that the SBP should focus on targeting core inflation, specifically non-food, non-energy (NFNE) inflation, as a more relevant measure for setting policy rates. Sheikh argued that the SBP should differentiate between cost-push and demand-pull inflation and adjust monetary policy accordingly. He recommended that the SBP strip out volatile price changes to identify true inflationary trends and work with federal and provincial authorities to curb price manipulation and hoarding.
Nasir Khan, Vice President of the FPCCI, echoed Sheikh’s sentiments, emphasizing that the SBP should prioritize core inflation over general inflation in its policy decisions. He highlighted that general inflation includes volatile components such as food and energy, which are less relevant for long-term monetary policy. Khan also called for stronger enforcement of price control measures to prevent hoarding and price gouging.
Khan noted that despite the significant increase in policy rates from 9.75% to 22% over six quarters in 2022 and 2023, general inflation has remained persistently high, suggesting that policy rate hikes alone are insufficient to control inflation. He stressed that the government needs to employ a broader range of policy tools to manage inflationary pressures and stabilize the economy.
The FPCCI’s call for an immediate policy rate cut reflects growing frustration within Pakistan’s business community over the high cost of borrowing and the perceived lack of responsiveness from the central bank and government. As Pakistan grapples with economic instability and dwindling exports, the FPCCI believes that more aggressive monetary easing and comprehensive policy measures are necessary to support economic recovery and growth.
