Interest rate cut by 75 basis points to 12.5%

KARACHI: The interest rate has been reduced by 75 basis points to 12.5%, the State Bank of Pakistan announced on Tuesday, much to the dismay of traders and the business community, who were expecting a bigger reduction of at least 2-3%.

Earlier today, the benchmark KSE-100 Index slipped 3.17% to close at 32,616 points despite a prediction to end at a positive note over the policy rate cut forecast. The PSX had on Monday suffered the worst single-day dive in its history.

Following the meagre rate cut, Karachi Chamber of Commerce and Industry (KCCI) President Agha Shahab Ahmed Khan said Pakistan's traders and the businesspeople faced challenges everywhere. "We had consistently pushed recommendations to bring interest rate to single digits," he said.

The economy, Khan added, was running on revenue generation and collection but the PTI government needed to offer some kind of support to the business community.

'Committed suicide'

The KCCI top official criticised the measly reduction, saying it was better to make decisions keeping in mind the ground realities. "What needs to be done is not being done," he lamented.

Stock trader and business magnate Arif Habib termed the policy rate cut as "depressing", saying the government was choosing not to see its finances and was instead committed to economic suicide.

"They first committed suicide by devaluation [of currency] and they have now committed suicide by not reducing the interest rate" adequately, he added.

Habib explained that the government could have saved Rs300 billion if it reduces the interest rate by 1%; therefore, had it been brought down by 2%, the impact on the budget would have been Rs600 billion annually.

"The government would only earn revenue if the businesses continue," he said.

Business community lost trust in govt

Irked by the development, the business magnate asked: "Why doesn't the government's monetary police committee understand this?"

Topline Securities Chief Executive Mohammed Sohail noted that the coronavirus pandemic had triggered a slowdown. "A bigger interest rate cut would have provided stimulus to the economy and it was a great opportunity to restore traders' trust," he said.

"Ever since the incumbent government came into power, the business community has lost its trust in the leadership," he added.

KCCI Senior Vice President Khurram Shahzad termed it a "conservative decision" and said there was a lot of space for a reduction in the policy rate.

"The SBP could have reduced it by 100-150 basis points," he mentioned. At least "20 countries have introduced a major cut in the policy rate to help common people", he added.