Karachi, November 4, 2024 – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed dismay at the State Bank of Pakistan’s (SBP) recent decision to reduce the policy rate by only 2.5%, calling it insufficient for the economic needs of the country. Businesses had hoped for a more substantial cut, at least 500 basis points, given the sharp decline in inflation.
FPCCI President Atif Ikram Sheikh emphasized the disparity between the current policy rate of 15% and the core inflation rate of 6.9% as of September 2024. He noted that this 1060-basis-point gap places an undue burden on businesses. “This significant premium over core inflation is unsustainable for the economic and industrial sectors,” Sheikh asserted, stressing that a drastic rate cut is essential to align monetary policy with the government’s pro-growth objectives.
Sheikh further highlighted the favorable economic conditions that justify a larger cut, including declining global oil prices. With Saudi Arabia expected to reduce crude prices for Asia, Sheikh argued that the SBP now has sufficient grounds to adopt a more accommodative policy to stimulate economic growth and reduce borrowing costs. “The current inflation trends support a meaningful rate reduction, and it’s time to move away from a contractionary policy stance,” he added.
Reflecting the industry’s concerns, FPCCI Senior Vice President Saquib Fayyaz Magoon advocated for an immediate reduction of the interest rate to 12.5%. He argued that such a measure would enhance competitiveness for Pakistani exporters by significantly lowering their capital costs. Magoon also urged the government to honor its commitment to reduce electricity tariffs for industry and renegotiate Independent Power Producers (IPP) agreements to eliminate capacity charges, which would reduce energy costs for businesses.
The FPCCI’s leaders criticized the SBP’s cautious approach, asserting that it fails to address the critical issues of business costs and economic growth. The high cost of capital, they argued, continues to place Pakistan at a disadvantage compared to regional competitors. Sheikh underscored that inflationary pressures have shown a sustained downward trend for months, and thus the SBP’s conservative policy stance hampers potential economic recovery.
In closing, the FPCCI called on the government to engage with the business community on critical economic policies. The apex trade body urged transparency around measures that impact Pakistan’s adherence to the IMF program, as well as steps to restore economic growth. By consulting with industry leaders, the government could create an environment of mutual confidence, enabling businesses to plan and invest with a clearer understanding of Pakistan’s economic direction.
