Karachi, June 10, 2024 – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed strong dissatisfaction with the State Bank of Pakistan’s (SBP) recent decision to cut the key policy rate by 150 basis points.
On Monday, FPCCI President Atif Ikram Sheikh labeled the reduction as “too little, too late,” calling for a more substantial cut to stimulate economic growth and competitiveness.
In a statement, Sheikh emphasized that the business community had anticipated a more significant reduction in the policy rate, especially given the notable decline in core inflation, which dropped to 11.8 percent in May 2024—the lowest in 30 months. Sheikh argued that a policy rate of 15 percent would be more appropriate, enabling Pakistani exporters to compete more effectively in regional and international markets by significantly reducing the cost of capital.
“The current reduction does not go far enough to alleviate the financial burden on businesses,” Sheikh stated. He urged the government to fulfill its promise of rationalizing electricity tariffs for the industry, a crucial step towards reducing overall production costs.
Sheikh highlighted the declining trend in consumer prices, which fell by 3.2 percent in May 2024 compared to a decrease of 0.4 percent in April 2024, according to the Pakistan Bureau of Statistics (PBS). He stressed that it is high time to provide the business community with easier access to finance through a more aggressive cut in the key policy rate.
Representing the apex trade and industry body of Pakistan, Sheikh questioned the government’s commitment to transparency and consultation in economic policymaking. He called for clarity on two critical issues: the measures being undertaken to secure a new IMF program and their impact on the cost of doing business in Pakistan, and the steps to be taken post-IMF program signing to stabilize the economy.
To promote price stability, FPCCI proposed that the SBP focus on core inflation, specifically non-food, non-energy (NFNE) inflation, for operational guidance. The FPCCI recommended that the SBP should strip out volatile changes in specific prices to distinguish genuine inflation from temporary fluctuations. Effective control of price manipulation and hoarding, in collaboration with federal and provincial government departments, was also emphasized.
Saquib Fayyaz Magoon, Senior Vice President of FPCCI, urged the SBP to prioritize core inflation over general inflation, as the former excludes the most volatile components of the basket. He called for the government to enforce stringent price control measures and take vigilant actions against hoarding and malpractices.
Magoon pointed out that despite substantial hikes in policy rates from 9.75 percent to 22 percent over six quarters in 2022 and 2023, general inflation remained high and unresponsive to these measures. He stressed that the government must employ additional policy tools to address the country’s economic instability effectively.
“The successful completion of the IMF Stand-by Agreement (IMF-SBA) and the high policy rate have not resolved issues like dwindling exports and economic instability,” Magoon said. “This highlights the need for a multifaceted approach to economic policy beyond just interest rate adjustments.”
The FPCCI’s firm stance reflects a broader demand from the business community for more decisive actions to foster economic stability and growth in Pakistan.
