Pakistan’s business community is calling for a drastic reduction in the State Bank of Pakistan’s (SBP) policy rate, urging a cut of 300-500 basis points (bps) to stimulate economic activity amid a significant decline in inflation. With the SBP’s Monetary Policy Committee (MPC) set to convene on Monday, leaders from Pakistan’s industrial and trade sectors have underscored the urgent need for a more accommodating monetary policy to support trade and industrial growth.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President, Atif Ikram Sheikh, voiced the widespread dissatisfaction among business leaders, highlighting that the current policy rate, at 17.5%, vastly exceeds core inflation. Government data shows that inflation had dropped to 6.9% in September, creating a premium of 1,060 basis points over core inflation. Sheikh emphasized that a swift reduction of 500bps in the policy rate is essential to align with the Special Investment Facilitation Council’s (SIFC) goals, which prioritize economic revitalization and export growth.
In addition to the September inflation figures, recent economic indicators reinforce the call for a rate cut. Core inflation registered at 7.2% in October, and international oil prices are expected to fall in the near term, partly due to reports that Saudi Arabia may reduce crude oil prices for Asia by December. These factors, Sheikh argued, further support the case for a significant rate reduction.
FPCCI Senior Vice-President Saquib Fayyaz Magoon echoed this sentiment, suggesting that a policy rate adjustment to 12.5% could help Pakistani exporters compete more effectively in regional and global markets by reducing borrowing costs. Magoon noted that high interest rates have raised the cost of capital, making it challenging for exporters to stay competitive.
Additionally, the Karachi Chamber of Commerce and Industry (KCCI) President, Muhammad Jawed Bilwani, stressed that the high interest rates have stymied growth in large-scale manufacturing, which has faced steady declines in recent months. With inflation stabilizing and commodity prices leveling off, Bilwani argued that a substantial cut in the policy rate—between 300 and 500bps—is crucial to alleviate pressures on the business sector and reinvigorate economic growth.
The appeal from the business community highlights the disconnect between the current policy rate and prevailing economic conditions. With inflation under control and a favorable external economic environment, many business leaders feel that the SBP’s current stance on the policy rate is overly conservative. They contend that an accommodating policy would reduce borrowing costs, enable growth in manufacturing, and enhance Pakistan’s export competitiveness—objectives that align with broader economic recovery goals.
The SBP’s policy rate has remained high due to previous inflationary pressures and macroeconomic challenges, but the current landscape presents a unique opportunity for adjustment. The businesses argue that lowering the rate could offer immediate relief to struggling sectors and help stimulate investment across industries. Such a shift, they believe, is vital for creating a favorable environment for growth, job creation, and the broader economic revival Pakistan needs.
As the MPC prepares to review the policy rate, all eyes are on the SBP to see if it will respond to the appeals for a substantial rate cut. The decision will likely impact Pakistan’s economic trajectory, especially concerning the recovery of its manufacturing sector, export potential, and overall trade competitiveness.