Business community calls SBP 200bps rate cut 'inadequate'

KARACHI: The business community on Monday expressed disappointment over the State Bank of Pakistan’s (SBP) 2.0 per cent reduction in the policy rate, describing it as insufficient and misaligned with the declining inflation trend.

Atif Ikram Sheikh, president of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), welcomed the reduction but termed it inadequate, highlighting that businesses were expecting a 5.0 per cent cut. “Inflation has dropped to 4.9 per cent, a 78-month low, and under these circumstances, the policy rate should be brought down to single digits,” he demanded.

Muhammad Jawed Bilwani, president of the Karachi Chamber of Commerce and Industry (KCCI), expressed similar concerns. He said that the business community had been advocating for a reduction of 400-500 basis points (4-5 per cent), but the SBP’s minor adjustment fell short of expectations. “With a 200 basis-point cut, the key policy rate now stands at 13 per cent, which remains too high. A reduction of 5-7 per cent is necessary, aligning with regional countries like India, Vietnam and Bangladesh, where rates are 6.5 per cent, 4.5 per cent and 10 per cent, respectively,” Bilwani explained.

Bilwani said that a single-digit interest rate is critical to lowering borrowing costs, promoting business expansion and reducing the overall cost of doing business. While he acknowledged the SBP’s monetary easing -- lowering the interest rate from 22 per cent to 13 per cent in five consecutive cuts -- he urged for more aggressive reductions to stimulate economic growth and ease financial pressures on businesses.

“The tight monetary policy has led to prohibitively high borrowing costs, significantly harming the economy, particularly the manufacturing sector. A more substantial cut is now essential,” he added, expressing hope that the SBP would reduce the rate by at least 500 basis points (bps) in its next review.

Junaid Naqi, president of the Korangi Association of Trade and Industry (KATI), also criticised the 2.0 per cent cut as insufficient. “With inflation at a six-year low of 4.9 per cent, there is a strong case for deeper policy rate reductions. Improving economic indicators, such as strengthening foreign exchange reserves, an appreciating rupee, and a current account surplus, further support the need for lower interest rates,” Naqi argued.

Naqi noted that inflation had declined more rapidly than the SBP’s forecasts, falling from 7.2 per cent to 4.9 per cent. He reiterated the business community’s demand for single-digit interest rates to boost industrial growth and overall economic activity.

Ahmed Azeem Alvi, president of the SITE Association of Industry Karachi, shared the same sentiment, calling the 2.0 per cent cut disappointing. He said that while the reduction to 13 per cent may have a limited impact, a more ambitious strategy to bring the interest rate to single digits would drive economic growth, increase bank borrowing and encourage industrial expansion.

The business community collectively stressed that the SBP must adopt a more proactive approach to monetary easing, enabling businesses to thrive and ensuring sustainable economic growth.