Business leaders criticise 'insufficient' rate cut

Business leaders and industrialists strongly criticised the insufficient 2% cut in the interest rate announced by the State Bank of Pakistan (SBP) on Monday, describing it as a disappointing initiative. They urged the government to review the decision immediately in the larger interest of economic growth.

Leading business leader and Pakistan Stock Exchange (PSX) Director Ahmed Chinoy said the government must reconsider the decision and scale down the interest rate up to 5% to put the economy on the right track, and to encourage businesspeople to make more investments in various sectors, including industry, PSX, and other businesses. Low interest rates enhance industrialisation and GDP growth, he said.

Commenting on the central bank's decision to reduce the interest rate by 2%, bringing it down to 13%, Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Jawed Bilwani said KCCI and the entire business community had been demanding a minimum reduction of 400 to 500 basis points (bps). "The SBP has reduced it only meagrely, which is disappointing as it does not align with the declining trend in inflation, which fell to 4.9% in November", he said.

"With a reduction of 200 basis points, the key policy rate now stands at 13%, which remains too high. It is essential to reduce the rate aggressively, ideally to between 5% and 7%, in line with other countries in the region and the world," he said.

Referring to policy rates in India, Vietnam, and Bangladesh, where the interest rate stands at 6.5%, 4.5%, and 10%, respectively, he said, the business community wants to see Pakistan's interest rates dropping to a single digit as well. "This would encourage borrowing and promote business expansion by lowering the cost of doing business, ultimately benefiting the economy," he stressed.

The tight monetary policy implemented by SBP led to exceptionally high borrowing costs, hurting the economy substantially, particularly the manufacturing sector. Therefore, a significant cut has become necessary, he urged.

"We hope that the declining trend in the interest rate continues, with SBP reducing the policy rate by at least 500 basis points in its next review," he added.

He acknowledged the SBP for continuing to ease its monetary policy, noting that this was the fifth consecutive cut, reducing the interest rate from 22% to 13%. However, he urged for a more significant reduction to stimulate economic growth and alleviate the financial burden on businesses and consumers.

Ahmed Azeem Alvi, President of the SITE Association of Industry (SAI) Karachi, echoed the demand for a 500 basis points (5%) reduction. "Bringing the interest rate to 13% will not have a significantly positive impact on the economy and industry," he said, adding, "On the one hand, the government is encouraging business expansion and the establishment of new industries, but on the other hand, serious steps are not being taken to reduce business costs, which is causing difficulties for the business community. If the government truly wants to put the country on the path of economic development, it should implement industry-friendly measures and consult stakeholders before making any decisions."

The central bank's Monetary Policy Committee should convene a meeting every 15 days until the interest rate comes to a single digit, he suggested.