Business leaders criticise SBP’s decision to hold policy rate at 12%

KARACHI: The business community on Monday expressed disappointment over the State Bank of Pakistan’s (SBP) decision to keep the policy rate unchanged at 12 per cent, despite inflation falling to a nine-year low.

President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) Atif Ikram Sheikh criticised the monetary policy, arguing that it continues to impose an excessive premium relative to core inflation. He noted that while inflation stood at just 1.5 per cent in February 2024, the policy rate remains at 12 per cent, reflecting a gap of 1,050 basis points (bps).

Sheikh emphasised that, after consulting various industries, the FPCCI had called for an immediate 500bps rate cut in the latest Monetary Policy Committee (MPC) meeting. He argued that a lower rate would align with the Special Investment Facilitation Council’s (SIFC) agenda and the prime minister’s vision for economic and export growth.

The FPCCI has projected core inflation to remain between 1-3 per cent from March to April 2025 and urged authorities to bring the policy rate down to 3-4 per cent by the end of the fiscal year. Sheikh further highlighted stable international oil prices as a key factor easing inflationary pressures. With ample oil supply in global markets and OPEC+ countries maintaining surplus capacity, he predicted prices would stay in the lower $70s per barrel. Given these conditions, he urged the SBP to abandon its contractionary monetary policy and implement a substantial rate cut.

President of the SITE Association of Industry (SAI) Karachi Ahmed Azim Alvi also criticised the SBP’s decision, describing it as a setback for the business community. He noted that expectations were high for at least a two percentage points reduction, considering the steady decline in inflation.

Alvi stressed that the business sector has consistently called for a single-digit interest rate but claimed that the MPC continues to overlook these demands. He urged the SBP to support industrial growth and contribute to Prime Minister Shehbaz Sharif’s economic vision by gradually reducing the policy rate, making credit more affordable and stimulating economic activity.

Acting President of the Korangi Association of Trade and Industry (KATI) Ejaz Ahmed Sheikh echoed similar concerns, labelling the decision as ineffective for economic expansion. He argued that inflation had dropped to its lowest level in nearly a decade, making a rate cut necessary. Instead, he accused the central bank of prioritising its negotiations with the International Monetary Fund (IMF) over domestic economic needs.

Meanwhile, Chairperson of the Pakistan Vanaspati Manufacturers Association (PVMA) Sheikh Umer Rehan called the SBP’s decision detrimental to the industrial sector. He said businesses had strongly advocated for a significant rate cut, but the unchanged policy fails to address the needs of industries.