The Karachi Chamber of Commerce and Industry (KCCI) has expressed disappointment over the State Bank of Pakistan’s (SBP) recent policy rate adjustment. The SBP, through its Monetary Policy Committee (MPC), announced a modest 2% reduction in the policy rate, bringing it down to 13%. While the decision marks the fifth consecutive rate cut in the ongoing easing cycle, the business community believes it falls significantly short of the measures needed to stimulate economic growth.
Muhammad Jawed Bilwani, President of KCCI, described the reduction as insufficient, emphasizing that the business community had been advocating for a more substantial cut of at least 400 to 500 basis points. Bilwani argued that the modest reduction does not align with the current economic landscape, particularly in light of declining inflation, which dropped sharply to 4.9% in November 2024.
Bilwani highlighted that a single-digit policy rate is critical to reducing the cost of doing business in Pakistan. He stressed that lower borrowing costs would encourage businesses to expand and invest, ultimately driving economic growth. Despite acknowledging the SBP’s efforts to ease monetary policy, which has seen the policy rate decrease from a high of 22% to the current 13% over a series of adjustments, he urged the central bank to adopt a more aggressive stance in its future monetary reviews.
The KCCI president pointed out that the tight monetary policy previously implemented by the SBP had imposed significant financial strain on the economy. The manufacturing sector, in particular, has borne the brunt of excessively high borrowing costs, which have stifled productivity and growth. Bilwani called for immediate and substantial reductions in the policy rate to alleviate the financial burden on businesses and consumers alike.
“We hope that the declining trend in the interest rate continues,” said Bilwani, adding that the business community is counting on a further reduction of at least 500 basis points in the next monetary policy review. He emphasized that the current decline in inflation to single digits was not solely a result of SBP’s monetary tightening. Instead, it was driven by external factors such as falling global commodity and oil prices, as well as administrative measures taken by the government and improved agricultural production.
Bilwani expressed optimism that further rate cuts would pave the way for economic revival and provide much-needed relief to businesses struggling with the high cost of operations. He reiterated that a more competitive interest rate is essential for fostering an environment conducive to investment, industrial growth, and job creation.
The KCCI’s criticism underscores the broader challenges faced by Pakistan’s economy, where balancing inflation control with economic growth remains a delicate task. While the central bank has made strides in easing monetary policy, the demand for more aggressive cuts reflects the urgency of addressing the financial pressures confronting the business sector.
As the SBP prepares for its next policy review, the business community hopes for a more ambitious approach to rate reductions, aligning with their call for single-digit interest rates to bolster economic activity and improve Pakistan’s overall business climate.