KARACHI: The policy rate cut of 100 basis points by the State Bank on Monday disappointed most of the business community as they expected that a much bigger cut would bring the interest rate down to 7 to 8 percent
President Karachi Chamber of Commerce & Industry (KCCI) Iftikhar Ahmed Sheikh, while commenting on State Bank’s decision to reduce the interest rate by 1 percent to 19.5 percent, stated that KCCI was expecting substantial reduction in interest rate but, unfortunately, it has been reduced by 1 percent only which was not enough and it should have been reduced by 300 to 500 basis points.
“With a reduction of 100 basis points, the key policy rate now stands at 19.5 percent which was still too high; hence, it must be reduced more aggressively to quickly go down to single digit at somewhere around 7 to 8 percent at par with many other countries in the region and around the world”, he added in a statement issued here on Monday.
He said that the business community wants to see interest rate down to single digital which would definitely encourage borrowings and promote expansion due to reduced cost of doing business, proving favourable for the economy.
It is encouraging to see that the State Bank of Pakistan has continued to ease monetary policy stance as this was the second consecutive cut which brought the interest rate down from 22 percent to 20.5 percent and now 19.5 percent.
This, to some extent, would stimulate economic growth and ease financial burden on businesses and consumers, he added.
He stated that that it was a well-known fact that tight monetary policy stance by SBP that led to unprecedently expensive borrowing caused too much loss to the economy, particularly the cost of doing business, which has grossly suppressed the manufacturing sector, hence, relief in the form of substantial cut has become inevitable. “We appreciate second consecutive reduction in interest rate and hope that the trend continues with SBP reducing policy rate by at least 300 to 500 basis points in its next review”, he added.
Although the inflation has drastically come down but in Pakistan’s case, it was not because of SBP’s tight monetary policy stance but due to administrative measures taken by the government along with improved agricultural production, he opined while referring to excellent agricultural production. “Stability in rupee value is also one of the major reasons for easing the inflation as it is a well-known fact that huge quantities of commodities were regularly being imported in Pakistan, hence, devaluation of rupee directly triggers the inflation”, he added.
Iftikhar Ahmed Sheikh hoped to see further reduction in interest rate which would be widely welcomed by the entire business community of the country that has been badly hit due to exorbitantly high cost of doing business.
However, Mohammad Kamran Arbi, President of the Site Association of Industry Karachi has described the recent reduction in interest rates as insufficient. He has urged the State Bank of Pakistan to implement a further cut, aiming to bring the rate to a single digit to help reduce production costs.
According to Arbi, high interest rates place a significant burden on industries, making it difficult for them to compete in global markets under these conditions.
In a statement issued on Monday, Arbi emphasised that a single-digit policy rate was proposed in the budget proposals by SITE Association of Industry to address the heavy strain on purchasing power due to rising production costs.
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