Industrialists decry 1% rate cut

Say decline in inflationary pressures provided room for aggressive 5% reduction

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KARACHI:

Rejecting the 1% cut in interest rate as tiny, industrialists and traders have asked the State Bank of Pakistan (SBP) to do more, with a view to boosting economic growth.

They said the poor economic strategy of the government and the central bank dismayed the entire business community of the country. They called for a more holistic and pragmatic approach to monetary policy, one that aligns not only with the region but also with the government's broader objectives of economic growth, export enhancement, and employment generation. Expressing strong disappointment over the SBP's decision to implement a nominal reduction of just 1% in the policy interest rate, Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Jawed Bilwani criticised the move as insufficient to address the prevailing economic challenges and unlock the country's growth potential.

He said the decision reflects a lack of urgency in addressing the critical financial and economic issues faced by businesses, particularly small and medium-sized enterprises (SMEs) across the country.

"Despite the prime minister's assurances of bringing the interest rate down, the SBP has kept it to 12%, which the business community is unable to understand," he said. Bilwani added that businesses are operating under severe strain due to an unprecedented increase in input costs, including energy tariffs, fuel prices, and raw material costs, coupled with a volatile exchange rate.

He said the recent decline in inflationary pressures provided ample room for the SBP to implement a more aggressive cut in interest rates. Notably, Pakistan's annual consumer price inflation rate dropped to 4.1% in December 2024, the lowest level in more than six years. This significant decrease from the multi-decade high of around 40% in May 2023 is attributed to a stable currency, lower global commodity prices, and improved supply chains.

Federal B Area Association of Trade and Industry (FBATI) President Shaikh Muhammad Tahseen said the policy rate should be decreased to a single digit to entice a majority of businessmen and industrialists to borrow money from commercial banks. The SME sector needs financing of a substantial level, but commercial banks continue to support a limited section of industry tycoons to avoid penalties against lower advance-to-deposit ratio (ADR), he said.

The SMEs are the backbone of the national economy; if this segment is supported, the economy will definitely flourish. He urged the government and banking regulator to devise a scheme for SMEs at affordable markup rates to revive their production and expansion on a long-term basis. The Monetary Policy Committee (MPC) should take a bold step in the next meeting and announce a drastic cut of 5%, he said.

Speaking to The Express Tribune on Monday, SITE Association of Industry (SAI) Karachi President Ahmed Azeem Alvi said, "Prime Minister Shehbaz Sharif announced Uraan Pakistan (programme) for better economic growth, but the bureaucracy has raised the gas tariff by 25%, and the central bank is reluctant to reduce the interest rate. If a team leader asks for something anywhere in the world, the rest of the team backs it and fulfils his commitment in letter and spirit. In this country, the PM and bureaucracy go in different directions."

Alvi said high-interest loans are hindering economic recovery and discouraging investment, explaining that as a result, investor confidence is discouraged, and the prospects for accelerating business activities have diminished.

Pakistan Chemicals & Dyes Merchants Association (PCDMA) Chairman Salim Valimuhammad has rejected the SBP's 1% reduction in the interest rate, calling it insufficient.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh said after deliberations across all industries and sectors, FPCCI demanded an immediate and single-stroke rate cut of 500 basis points (bps) in Monday's Monetary Policy Committee (MPC) meeting to rationalise the monetary policy and align it with the vision of the Special Investment Facilitation Council (SIFC) and the prime minister's vision for economic growth and exports growth.

welcoming the SBP's proactive approach, the LCCI urged the government and the central bank to take additional steps to further strengthen the economy. These include addressing energy costs to reduce production expenses, introducing tax reforms to ease the financial burden on businesses and providing targeted support to SMEs. The business community also emphasised the importance of continued engagement with stakeholders to resolve structural economic challenges effectively.

The LCCI leaders also called on commercial banks to extend the benefits of the reduced discount rate by lowering their lending rates for businesses, especially for SMEs and startups, which play a vital role in driving economic activity.