KARACHI: Local businessmen were disappointed by the State Bank’s decision to lower the interest rate by 200 basis points to 13 percent on Monday, excluding foreign investors and multinational corporations (MNCs). They had anticipated a 400–500 basis point fall in tandem with a significant decline in inflation.
Atif Ikram Sheikh, president of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), cautiously welcomed the policy rate decision but called it insufficient because the top chamber had demanded a 500 basis point decrease after inflation fell to 4.9 percent in November, a 78-month low.
He claimed that since all of the main indicators were trending upward, lowering the policy rate to one digit would stimulate economic activity.
Ehsan Malik, the chief executive of the Pakistan Business Council, stated that the drop is in line with expectations to support steady and sustained growth while containing inflationary and current account pressures.
MNCs and foreign investors praise SBP’s cautious attitude.
He stated that although headline inflation had dropped below 5 percent, the SBP’s Monetary Policy Committee (MPC) observed that core inflation, which stands at 9.7 percent, was still sticky.
The forward perspective, according to Mr. Malik, is another factor to take into account. This would probably limit future expectations of a policy rate decrease to 100bps in 2025 in order to settle at 12pc.
Despite demand from multiple trade groups for a bigger cut, the SBP made its decision based on merit, according to M. Abdul Aleem, secretary general and CEO of the Overseas Investors Chambers of Commerce and Industry.
According to him, the cut should hasten the economy’s recovery and increase industry and trade confidence.
However, despite the fifth consecutive drop since June, Muhammad Jawed Bilwani, president of the Karachi Chamber of Commerce and Industry (KCCI), stated that the policy rate was still too high. To keep up with the global and regional trends, the central bank ought to have cut it by 500–700 basis points. Bangladesh, Vietnam, and India have policy rates of 6.5 percent, 4.5 percent, and 10 percent, respectively.
According to him, the business sector wanted interest rates to fall to single digits since doing so would cut the cost of conducting business, which would encourage borrowing and spur corporate expansion and ultimately boost the economy.
He called for a larger cut to boost economic expansion and lessen the financial strain on individuals and companies.
He expressed hope that the central bank would lower interest rates by at least 500 basis points in the upcoming review, claiming that the State Bank’s strict monetary policy had resulted in abnormally high borrowing costs and significant economic damage, especially to the manufacturing sector.
“The global downward trend in commodity and oil prices, along with government administrative actions and increased agricultural output, are the main reasons why inflation has not fallen to single digits,” he noted, rather than the SBP’s strict monetary policy.
