Businesses advocate cut in policy rate to fuel economy

KARACHI: Business leaderships and traders have urged the Governor of the State Bank to reduce interest rates to single digit to stimulate economic growth and end the stagnation currently gripping the country.

Acting President of the Korangi Association of Trade and Industry (Kati) Ejaz Ahmed Sheikh has urged the State Bank of Pakistan (SBP) to announce a significant reduction in interest rates in the upcoming monetary policy meeting.

He stated that with inflation now at its lowest level in nine years, keeping interest rates high is unjustifiable. “Inflation has dropped to 1.5% in February 2025, marking a significant decline. When inflation is falling, there is no reason to maintain high interest rates.”

Sheikh emphasised that the SBP must provide relief to the business community in the monetary policy committee meeting scheduled for March 10, 2025. He pointed out that inflation has been on a continuous downward trend. In February, the Consumer Price Index (CPI) decreased by 0.8%, and the average inflation for the first eight months of FY2024-25 stood at 5.85%, compared to a staggering 27.96% last year. “Despite this clear decline, if the interest rate remains at its current high level of 12%, it will have a negative impact on industries and the economy,” he warned.

Sheikh further explained that high interest rates are hurting industrial production, investment, and exports. “To reduce business costs and boost economic activity, an immediate and substantial cut in interest rates is essential. The SBP needs to adopt a realistic approach to support industries and drive economic growth.”

The acting president Kati called on the government and policymakers to understand the challenges faced by businesses and prioritise industrial development. “This is not the time to persist with a tight monetary policy but rather to take practical steps toward economic stability and growth.”

“A reduction in interest rates will not only encourage investment but also create employment opportunities and boost exports, ultimately benefiting the overall economy.”

However, Faisal Moez Khan, President of the North Karachi Association of Trade and Industry (NKATI) appealed to the Governor of the State Bank of Pakistan to reduce the interest rate by up to 5% in the upcoming monetary policy.

He stated that this would not only bring the real interest rate to a sustainable level but also make loans more accessible to businessmen and industrialists.

Khan emphasised that the government has acknowledged the reduction in the inflation rate, and in such a scenario, it is crucial for the Monetary Policy Committee (MPC), which will be present in the upcoming meeting, to decide on reducing the interest rate by 5%. This reduction would pave the way for new investments in the industrial sector and create employment opportunities for Pakistan’s youth. He further mentioned that the high interest rates have made servicing Pakistan’s domestic debt unbearable.

Additionally, Sheikh Tahseen Ahmed, President of the Federal B Area Association of Trade and Industry (FBATI), stated that Pakistan still has the highest policy rate in the region, which is putting additional pressure on the national budget and further increasing fiscal imbalances. “A reduction in interest rates serves as a stimulus for economic activities, accelerating growth, increasing competitiveness, and improving the business environment.”