The business community voiced mixed opinions following the central bank’s decision of keeping the policy rate unchanged at 12% on Monday.
The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decision was not in line with expectations of the market analysts who were hoping a further cut in the key interest rate after a cumulative decrease of 10% in the past 10 months.
In a press statement issued post the MPC announcement, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) president Atif Ikram Sheikh said the business, industry, and trade community of Pakistan was disappointed with the monetary policy decision of keeping the policy rate unchanged.
The inflation reading hit 113-month low at 1.5% in February 2024, but the central bank left the policy rate at 12%, suggesting the real interest rate stood at 10.50 percentage points at present, he said.
Sheikh maintained that after deliberations across all industries and sectors, the trade body had demanded an immediate and single-stroke rate cut of 500 basis points.
“FPCCI notes that the core inflation is expected to be in the range of 1% to 3% for the months of March – April 2025; and, all through the rest of the outgoing fiscal year. Therefore…key policy rate should be brought down to 3% to 4% by the end of FY25,” he said.
According to FPCCI’s senior vice president Saquib Fayyaz Magoon, the key interest rate should immediately be brought down to single digit to enable Pakistani exporters to some extent to compete in the regional and international export markets through reducing the cost of capital in a meaningful way.
“This step should be accompanied by the fulfillment of government’s commitments to rationalise electricity tariff for industry,” he said, adding gas supply shortages or disruptions couldn’t coexist with any substantive export growth and import substitution initiatives.
Meanwhile, the Pakistan Business Council (PBC) chief executive officer Ehsan Malik welcomed the SBP decision of maintaining its key policy rate at 12% on Monday.
“Further rate cut at this time was likely to be revised up in the months ahead,” Malik said.
The maintenance of the rate was a good decision amid the 12-month forward inflation reading projected at an average at 8% compared to 5.85% in the first eight months of current fiscal year 2024-25, according to the PBC official.
“Had the central bank further cut the policy rate today (Monday, March 10), it would have to revise up it in the months ahead amid likely uptrend in inflation reading on the 12-month forward looking basis,” he said.
Malik further noted that the volume of imports was increasing at a comparatively higher rate compared to slowdown in export earnings and the demand for higher dollars in inter-bank market was mounting pressure on rupee and draining out foreign exchange reserves.
“A further rate cut would have mounting pressure on rupee,” he maintained.
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