Industrialists have urged the Monetary Policy Committee (MPC) to drastically slash the policy rate, which currently stands at 11%, to a single-digit in the wake of improved stability in economic and fiscal affairs.
They said lower interest rates will encourage industrialists and traders to expand their businesses and exports and also reduce the burden on businessmen for repayments of acquired financing from commercial banks.
MPC: caution against rushing rate cuts
Federal B Area Association of Trade and Industries (FBATI) President Shaikh Muhammad Tehseen said he wants the MPC and the State Bank of Pakistan (SBP) to reduce the policy rate to at least 9% to revitalize economic activity across the country.
He told Business Recorder the central bank should gradually reduce the policy rate to 6%, given the macro-economic stability of the country – inflation may remain in a favorable range of 3% to 4% in coming months, and the current account recorded a staggering surplus of over $2 billion – as well as the production growth of large, medium and small business and industrial units.
The FBATI president also believes the government should work on controlling the cost of production within the country to enhance exports and maintain economic stability. In this regard, the prices of fuel should be reduced in line with the international market while the extra burden of taxes and levies must be avoided petroleum products, he said.
The government should continue the current tariff of electricity for long-term stability through reforms in energy and power sector via negotiations with Independent Power Producers (IPPs), and reducing the line losses, according to Tehseen.
Policy interest rate: SMAP urges MPC to consider significant cut
He reiterated that the government should restore confidence of local and foreign businessmen and investors through revoking oppressive laws of the tax authority to improve economic growth in the country.
The monetary policy committee kept the policy rate unchanged in the last announcement.
Pakistan’s central bank is expected to cut its key interest rate by 50 basis points to 10.5% on Wednesday, a Reuters poll showed, with a unanimous forecast for further easing as inflation slows and external balances improve.
PBF urges MPC, SBP chief to announce interest rate at 6pc
All 14 analysts surveyed expect the State Bank of Pakistan to cut rates, with nine projecting a 50 bp cut – also the median forecast – while four see a deeper 100 bp cut and one a 25 bp reduction.
Reducing policy rate in phases
SITE Superhighway Association of Trade and Industry (SSHAI) President Pervaiz Masood told Business Recorder the benefit of recovery of economic growth should be passed on to industrialists and businesses.
The banking regulator and its department should also consider the economic contribution of businessmen and the facilitations offered to them in return while taking decision about setting interest rate mechanism in the country, he said.
SBP likely to cut policy rate in upcoming MPC meeting, say analysts
He further said the MPC should set the target of reducing the policy rate in the upcoming monetary policies in phases as per the calendar of announcements issued for the whole year recently.
President Hyderabad Chamber of Small Traders & Small Industry (HCSTSI), Muhammad Saleem Memon, also believes the SPB should immediately bring down the policy rate to single digits.
He pointed out that the government itself is heavily indebted to banks and is currently spending over Rs8.5 trillion annually just in interest payments.
A reduction in interest rates could save the government approximately Rs1.5 to 2 trillion annually, he told Business Recorder.
These funds could be redirected towards critical sectors like education, healthcare, infrastructure, and especially for direct support to small traders and businesses. This would be a significant relief at a time when the country is facing severe financial challenges both internally and externally.
The HCSTSI President expressed concern over the interest rate disparity between Pakistan and regional competitors like Bangladesh, Vietnam, and India. He said these countries offer significantly lower financing costs to their industries, which has enabled them to scale up exports far more effectively than Pakistan.
In the textile sector especially, Vietnam and Bangladesh have rapidly expanded their global market share, while Pakistan’s export industry continues to suffer due to expensive financing and high cost of doing business.
Memon made a strong appeal to the government and SBP to adopt a phased approach to bring down the interest rate to 6%, starting with an immediate reduction below 9%. He stressed that such a move would not only ease the burden of government borrowing but also provide major relief to ordinary citizens, industrialists, traders, exporters and potential investors.
“Now is the time for the government to shift from harsh monetary policies towards more pragmatic, business-friendly, and people-oriented economic decisions,” he said.
