Karachi, November 4, 2024 – The Karachi Chamber of Commerce and Industry (KCCI) expressed strong dissatisfaction on Monday with the State Bank of Pakistan’s (SBP) decision to reduce the benchmark policy rate by 2.5%, deeming the measure insufficient to address the needs of Pakistan’s business community.
KCCI President Muhammad Jawed Bilwani criticized the cut, which brings the policy rate down to 15%, as failing to reflect the significant decline in inflation, which has now fallen into single-digit territory.
“While KCCI acknowledges the SBP’s continued efforts to ease monetary policy, a more substantial cut of at least 5% was anticipated,” said Bilwani in a statement. “A reduction of only 250 basis points does little to alleviate the high borrowing costs that have stifled economic growth, especially within the manufacturing sector.” Bilwani argued that a policy rate in the range of 5% to 7%, more in line with global and regional benchmarks, would be appropriate to stimulate investment and drive economic expansion.
Bilwani highlighted that the recent reduction, though part of a sequence of rate cuts from a peak of 22% earlier this year, falls short of providing the relief urgently needed by Pakistan’s businesses. He argued that single-digit interest rates would encourage greater borrowing, reduce the cost of doing business, and enhance competitiveness. “Lower borrowing costs are essential for expanding operations and boosting employment,” he added, underscoring the need for a more aggressive reduction to promote sustainable growth.
The KCCI president also attributed the recent disinflation to factors beyond monetary policy. He pointed to administrative interventions, improved agricultural productivity, and stable international oil prices as key drivers of the easing inflationary pressures, as well as the strengthening of the Pakistani rupee. “The appreciation of the rupee has played a crucial role in moderating inflation, especially given Pakistan’s dependency on imported commodities,” Bilwani remarked, noting that currency devaluation directly fuels inflation by increasing import costs.
Bilwani reiterated that while the KCCI appreciates the SBP’s fourth consecutive rate cut, the current policy stance remains too restrictive for a business environment burdened by high costs. He urged the central bank to consider a further reduction of at least 500 basis points in its next monetary review, asserting that the business community is hopeful for a more robust response to alleviate financial pressures and invigorate economic activity.
The KCCI’s call for deeper cuts reflects the broader concerns of Pakistan’s industrial and commercial sectors, which have struggled under tight monetary conditions. As the business community continues to grapple with high operational costs, many share Bilwani’s belief that a more aggressive easing of policy rates is necessary to unlock Pakistan’s economic potential and provide a much-needed boost to growth and employment.
