Industrialists Advocate for Policy Rate Reduction to Boost Economic Activity
Business leaders are pushing the Monetary Policy Committee (MPC) to significantly lower the policy rate from its current level of 11% to a single-digit figure, citing enhanced stability in the economic and fiscal landscape.
According to them, reduced interest rates would incentivize industrialists and traders to increase their business operations and exports. Furthermore, this would alleviate the financial strain on business owners regarding repayments of loans obtained from commercial banks.
Calls for a Lower Policy Rate
Shaikh Muhammad Tehseen, President of the Federal B Area Association of Trade and Industries (FBATI), expressed his desire for the MPC and the State Bank of Pakistan (SBP) to decrease the policy rate to a minimum of 9% to stimulate economic activity throughout the nation.
He told Business Recorder that considering the country’s macro-economic stability, the central bank should gradually bring down the policy rate to 6%. He noted that inflation is projected to remain within a favorable range of 3% to 4% in the coming months, and the current account has seen a substantial surplus of over $2 billion. He also mentioned the production growth of large, medium, and small businesses and industrial units.
The FBATI president also emphasized the importance of the government working to manage production costs within the country to boost exports and sustain economic stability. He suggested that fuel prices should be reduced in accordance with the international market and that additional tax burdens on petroleum products should be avoided.
Tehseen suggested that the government should maintain the existing electricity tariff for long-term stability by implementing reforms in the energy and power sector through negotiations with Independent Power Producers (IPPs) and reducing line losses.
He restated that the government should rebuild the confidence of local and foreign business people and investors by repealing restrictive tax authority regulations to promote economic growth in the country.
In its most recent announcement, the monetary policy committee decided to keep the policy rate unchanged.
According to a Reuters poll, analysts anticipate Pakistan’s central bank to reduce its key interest rate by 50 basis points to 10.5% on Wednesday, with a consensus forecast for additional easing as inflation declines and external balances improve.
All 14 surveyed analysts expect the State Bank of Pakistan to lower rates, with nine forecasting a 50 bp cut (the median forecast), four anticipating a larger 100 bp cut, and one projecting a 25 bp reduction.
Additional Perspectives on Rate Reduction
Pervaiz Masood, President of SITE Superhighway Association of Trade and Industry (SSHAI), informed Business Recorder that the advantages of economic recovery should be extended to industrialists and businesses.
He commented that the banking regulator should also consider the economic contributions of business owners and the support provided to them when making decisions about establishing the interest rate mechanism in the country.
He added that the MPC should aim to reduce the policy rate in stages during upcoming monetary policies, following the recently released announcement calendar for the entire year.
Muhammad Saleem Memon, President of the Hyderabad Chamber of Small Traders & Small Industry (HCSTSI), also believes that the SBP should promptly lower the policy rate to single digits.
He emphasized that the government is heavily indebted to banks, spending over Rs8.5 trillion annually on interest payments alone.
He told Business Recorder that a decrease in interest rates could save the government approximately Rs1.5 to 2 trillion annually.
These funds could be redirected towards vital sectors such as education, healthcare, infrastructure, and, in particular, direct assistance to small traders and businesses. This would provide considerable relief at a time when the country is confronting significant financial difficulties both domestically and internationally.
The HCSTSI President voiced concerns regarding the interest rate gap between Pakistan and regional competitors like Bangladesh, Vietnam, and India. He stated that these nations offer considerably lower financing costs to their industries, enabling them to increase exports far more effectively than Pakistan.
Particularly in the textile sector, Vietnam and Bangladesh have rapidly increased their global market share, while Pakistan’s export industry continues to struggle due to costly financing and the high cost of doing business.
Memon urged the government and SBP to adopt a phased strategy to lower the interest rate to 6%, starting with an immediate decrease below 9%. He emphasized that this action would not only reduce the government’s borrowing burden but also provide substantial relief to ordinary citizens, industrialists, traders, exporters, and potential investors.
He concluded, “Now is the time for the government to transition from stringent monetary policies to more pragmatic, business-friendly, and people-centered economic decisions.”
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