KARACHI: Business community was largely dissatisfied with the State Bank of Pakistan’s (SBP) monetary policy decision to keep the interest rate unchanged, calling for reduction in it to single digits to stimulate economic activity and boost exports.
Atif Ikram Sheikh President FPCCI said that the business, industry and trade community are disappointed with the monetary policy as it continues to be based on a heavy premium vis-à-vis core inflation as the SBP did not change the policy rate on its Monday meeting.
Currently, inflation as per government’s own statistics, stood at 1.5 percent in February 2024; but, the policy rate is 12.0 percent as of today – which reflects a premium of 1,050 basis points vis-à-vis core inflation, he added.
Sheikh continued that after deliberations across all industries and sectors, FPCCI had demanded an immediate and single-stroke rate cut of 500 basis points, in the Monday’s monetary policy committee (MPC) meeting, to rationalise the monetary policy and align it to the vision of special investment facilitation council (SIFC) and the Prime Minister’s vision for economic growth and exports’ growth.
He noted that the core inflation is expected to be in the range of 1–3 percent for the months of March–April 2025 and all through the rest of the outgoing fiscal year. Therefore, he demanded, key policy rate should be brought down to 3–4 percent by the end of FY25.
Sheikh explained that the international oil prices are also expected to remain stable; whereas, oil is one of the major contributing factors in creating ripple effects of inflationary pressures in Pakistan. There is sufficient oil supply in international and regional markets and spare capacity within the OPEC plus countries will be more than enough to keep oil prices in the lower side of $70s per barrel in the coming months. Therefore, the authorities in Pakistan now have all the prerequisites to announce a substantive rate cut; and do not hold onto their contractionary and anti-business monetary policy practices.
Sheikh reiterated the apex body’s stance that cost of doing business, ease of doing business and access to finance in Pakistan is at the lowest as compared to all its competitors in the export markets. Fortunately, the decisive downward trend in inflationary pressures has been continuing for the past many months and the only viable solution to get back on economic growth trajectory is to support industry and exports.
However, Saquib Fayyaz Magoon, SVP FPCCI, proposed that the interest rate should come down to single digit immediately 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 fulfilment of government’s commitments to rationalise electricity tariff for industry. He stressed that gas supply shortages or disruptions can’t coexist with any substantive export growth and import substitution initiatives.
However, President of Pakistan Business Forum (PBF) Khawaja Mehboob ur Rehman raised concerns about the government’s inflation data, questioning why interest rates have not been adjusted to reflect the country’s low inflation levels, as indicated in the recent monetary policy.
He argued that, even with caution, a rate cut of at least 150 to 200 basis points should be implemented to allow the economy to respond positively.
Khawaja Mehboob also highlighted that the business community remains dissatisfied with the current monetary policy, as it continues to impose an excessively high premium compared to core inflation. In the last MPC meeting on January 27, the State Bank of Pakistan (SBP) announced a modest 100-basis-point cut, which the business community found inadequate.
He pointed out that, with inflation at a nine-year low, as per government data—1.5% in February 2025 and 2.4% in January— there is no clear justification for maintaining the policy rate at 12%, resulting in a premium of 1,050 basis points above core inflation.
He emphasised that Pakistan’s cost of doing business, ease of doing business, and access to finance are at their lowest levels compared to competitors in key export markets.
Separately, Engr Daroo Khan Achakzai, Chairman of PBF Balochistan expressed disappointment with the central bank’s decision. He noted that the business community had been expecting a minimum 250 basis points reduction, but the outcome was unsatisfactory.
At its previous policy meeting, the central bank maintained its GDP growth forecast for the year at 2.5% to 3.5%, stating that faster growth would help boost foreign exchange reserves, which had been underperforming.
While GDP showed a 0.9% growth in the first quarter of fiscal year 2025, large-scale manufacturing remains in negative territory, and production has yet to gain momentum, he said.
Copyright Business Recorder, 2025
