Karachi, December 12, 2024 – The Karachi Chamber of Commerce and Industry (KCCI) on Thursday called on the State Bank of Pakistan (SBP) to implement a drastic 400 basis points (bps) cut in the upcoming monetary policy announcement. The demand follows a significant decline in inflation, which dropped to 4.86% in November 2024, marking its lowest level in recent years.
KCCI President Muhammad Jawed Bilwani emphasized that such a bold reduction in the policy rate would align real interest rates with sustainable levels and make borrowing more affordable for businesses and consumers. He stated that lowering interest rates acts as a catalyst for economic activity by fostering growth, enhancing competitiveness, and improving the overall business environment. This approach aligns with global best practices, where central banks adjust rates to stimulate growth during periods of low inflation.
KCCI President Bilwani highlighted that November’s inflation data represents the fourth consecutive month of single-digit inflation, following over two years of high inflationary pressures. “While the SBP has reduced the policy rate from 20.5% to 15% since the start of the fiscal year, the current rate remains high compared to regional peers such as India (6.5%), Vietnam (4.5%), and Bangladesh (10%),” he noted. He added that elevated interest rates continue to suppress private sector credit growth, stifling economic activity and putting Pakistan at a competitive disadvantage.
The KCCI President pointed out that credit to Pakistan’s private sector remains one of the lowest among emerging markets, at just 12.0% of GDP in 2023. This lags significantly behind India (50.1%), Türkiye (50.3%), and Bangladesh (37.6%). As of October 2024, private sector credit accounted for only 24.7% of total lending, down from 28.1% in January 2023, while public sector borrowing now dominates at 75.3%.
Bilwani acknowledged the government’s efforts to stabilize the economy, citing the reduction in the current account deficit and the stock market’s remarkable performance. The KSE-100 Index has surged by 77.5% since January 2024, surpassing the 100,000-point mark, reflecting growing investor confidence.
Despite these achievements, Bilwani expressed concern over the adverse effects of tight monetary policy. High interest rates have pushed domestic debt servicing costs to unsustainable levels, rising by 50.4% to PKR 7.2 trillion in FY24. This fiscal strain underscores the urgency for a significant rate cut to ease pressure on the economy, unlock private sector credit, and encourage investment.