KARACHI: Muhammad Kamran Arbi, President of the Site Association of Industry (SAI), has criticized the State Bank of Pakistan's (SBP) recent 2 percent cut in the interest rate, arguing that a more substantial reduction to single digits is necessary, along with a long-term, sustainable monetary policy.
He stated that the recent cut did not meet expectations given the current economic conditions, and that only a significant rate reduction would provide businesses with a more stable environment for future planning.
While acknowledging the SBP's rate cut as a positive move, Arbi dismissed it as insufficient. “It's a baby step,” he said, emphasizing that the SAI is calling for a reduction in interest rates to single digits.
Arbi also called for clearer communication from the government, noting, ‘‘When the interest rate is reduced to single digits, businesses need a clear roadmap. This will enable businesspeople to plan without further uncertainty regarding future investments.’’
He pointed out that inflation has already dropped to single digits, resulting in a real effective interest rate of approximately 10-11 percent. Arbi criticized the SBP for its slow response to changing economic conditions and urged for a more substantial and immediate rate cut, or at least a gradual reduction of 5 percentage points.
According to Arbi, the SBP should prioritize quantitative easing to stimulate economic growth. The State Bank of Pakistan announced to cut the key interest rate by 200 basis points to 17.5 percent from the previous rate of 19.5pc said Ateeq ur Rehman (economic & financial analyst).
The business community requested SBP for reduction by 500 basis points. The current monetary policy rate of 17.5 percent is still high, which has significantly impacted borrowing costs for businesses and individuals.
This high rate will contribute to reduced consumer spending, lower business investment, and slower economic growth. Many sectors, particularly small and medium-sized enterprises (SMEs), are struggling with the increased financial burden, which in turn affects their ability to contribute to economic development and job creation, as a whole.
In recent months, the business community has faced unprecedented challenges due to a combination of high monetary policy rates, elevated electricity costs, and soaring petroleum prices. These economic pressures are having a profound impact on businesses across various sectors, straining their operations and threatening their growth prospects said Ateeq.
He added that the current high monetary policy rate has significantly increased borrowing costs for businesses. This has led to higher interest payments on loans and reduced access to affordable capital. As a result, many businesses are struggling with elevated operational costs and constrained investment opportunities.
The increased cost of financing is squeezing profit margins and limiting the ability of companies to expand or pursue new projects.
Ateeq added that If we have to seriously pull out the country from current malice and bring a huge positive impact of the economy, radical decisions have to be made of enormous reduction in interest rates and cut in electricity, gas tariffs and petroleum prices.
Copyright Business Recorder, 2024
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