MULTAN: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) expressed disappointment with the State Bank of Pakistan’s (SBP) recent 2.5% policy rate cut, deeming it insufficient to meet the economy’s pressing needs. FPCCI President Atif Ikram Sheikh emphasized that businesses had anticipated a far more aggressive rate reduction at least 500 basis points in light of the significant drop in inflation.
Sheikh highlighted the troubling gap between the SBP’s current policy rate of 15% and the core inflation rate of 6.9% as of September 2024, marking a disparity of 1060 basis points. He pointed out that this significant premium over core inflation places “unsustainable burden” on Pakistan’s industrial and economic sectors. “A drastic rate cut is necessary to bring monetary policy in line with the government’s pro-growth agenda,” Sheikh remarked, underscoring that a more supportive rate environment is critical for fostering economic recovery.
Sheikh further underscored the favorable economic conditions supporting a deeper rate cut, citing declining global oil prices, with Saudi Arabia expected to lower crude prices for Asia. He argued that the SBP now has ample justification to shift towards a more accommodative stance to alleviate borrowing costs. “Current inflation trends warrant a meaningful rate reduction; it’s time for the SBP to move away from a contractionary stance,” he added.
FPCCI Senior Vice President Saqib Fayyaz Magoon echoed these concerns, advocating an immediate reduction in the interest rate to 12.5% to bolster Pakistan’s export competitiveness by significantly reducing capital costs. Magoon also urged the government to fulfill its commitment to lower industrial electricity tariffs and to renegotiate agreements with Independent Power Producers (IPPs) to eliminate capacity charges steps he emphasized would reduce energy costs for the business sector.
The FPCCI leadership criticized the SBP’s cautious approach, warning that it fails to address high business costs and the need for economic growth. They argued that the high cost of capital hinders Pakistan’s competitive edge in the region, with Sheikh noting that inflation has been on a downward trend for several months. The SBP’s conservative stance, he stated, obstructs a much-needed economic revival.
In conclusion, the FPCCI called upon the government to engage more actively with the business community on critical economic policies. The chamber urged transparency on measures affecting Pakistan’s IMF commitments, as well as on initiatives to reignite economic growth. By fostering a consultative approach, the FPCCI suggested, the government could instill mutual confidence, providing businesses with the clarity needed to plan investments in alignment with Pakistan’s economic trajectory.
