Karachi, July 29, 2024 – The Karachi Chamber of Commerce and Industry (KCCI) has expressed disappointment over the State Bank of Pakistan’s (SBP) decision to reduce the policy rate by only 100 basis points to 19.5%. The KCCI contends that this reduction is insufficient to address the economic challenges faced by the business community.
KCCI President Iftikhar Ahmed Sheikh argued that the 1% reduction falls short of what is needed to invigorate the economy. He urged the central bank to consider a more substantial cut of 300 to 500 basis points to bring the interest rate down to single digits. “The business community desires a single-digit interest rate to encourage borrowing, promote expansion, and reduce the cost of doing business,” Sheikh said in a statement.
While acknowledging the two consecutive rate cuts as a positive step, Sheikh emphasized that the current rate is still too high, thereby hindering economic growth. He argued that a lower interest rate would stimulate investment and consumption, which are crucial for economic recovery.
Sheikh attributed the recent decline in inflation to administrative measures taken by the government and improved agricultural production, rather than the SBP’s tight monetary policy. He pointed out that the stability of the rupee has also played a significant role in curbing inflation. “The SBP’s stringent monetary policy has not been the primary driver of the recent inflation reduction,” he stated.
The KCCI president highlighted the adverse impact of the high interest rate on the business community, particularly on small and medium-sized enterprises (SMEs). He noted that the high cost of borrowing has led to reduced business activity and hindered the expansion plans of many companies. “High interest rates have made it difficult for businesses to finance their operations and growth, ultimately affecting their competitiveness,” Sheikh said.
Sheikh expressed hope for further reductions in the interest rate, emphasizing that the business community has been severely impacted by the high cost of doing business. He called on the SBP to take more aggressive measures to support economic activity and ease the financial burden on businesses. “The KCCI believes that a more significant cut in the policy rate is necessary to provide the much-needed relief to the business community and to foster a more conducive environment for economic growth,” he added.
The KCCI’s stance reflects the broader sentiment among the business community, which has been advocating for a more aggressive monetary easing to stimulate economic activity and support struggling businesses. Many business leaders believe that substantial rate cuts are essential to reviving the economy, especially in the wake of the challenges posed by global economic uncertainties and domestic economic constraints.