Ahmed Khan Malik

Industrialists in Sindh have called for a drastic cut in the policy rate after inflation in the country has fallen to single digits. 

They believe that the monetary policy tool was used to curtail inflation when it peaked to an all-time high of 38% one and half years ago by pushing up the policy rate to historic levels of 22%.  They said that the government’s efforts have successfully contained inflation and now the State Bank of Pakistan should bring down the policy rate drastically to boost the economy.  Currently, the policy rate stands at 17.50%, which industrialists believe is too high to do business as high financing cost makes local products uncompetitive in the international market. Moeen Chishti, a leading industrialist in Kotri industrial area near Hyderabad, said that the next Monetary Policy Committee meeting scheduled for November 4, should drastically bring down the policy rate. “We have an opportunity to curtail the cost of doing business substantially through making access to finance possible on rational rates,” he told WealthPK. 

He said that the economy has cooled down over the last 16 months, and inflation plunged from 38% in May 2023 to 6.9% in September 2024. “It is a staggering six times reduction in inflation rates; nevertheless, the policy rate has dropped only by 450bps from 22% to 17.5%.” Chishti said that the government will be the biggest beneficiary of the reduction in interest rate as a 1% reduction in interest rate translates into approximately Rs476 billion reduction in debt burden. Reducing interest rates to single digits will free up government’s resources for development or infrastructure projects. Financing the budget deficit through indigenous resources and investing in the welfare of the people will also be beneficial. Faisal Mujtaba, secretary of Sukhur Industrial Forum, emphasized the need for renewed and effective economic relief facilities such as temporary economic relief facility (TERF), export finance scheme (EFS), and long-term financing facility (LTFF) to boost economic activities, investments, industrialisation and exports.

“The business community and ordinary citizens have been under severe economic strain for many years. However, there is an opportunity to provide relief through pro-growth and pro-business measures,” he underscored while talking to WealthPK. He said that inflation is going down across the board and the SBP should align its monetary policy with the inflation numbers of Pakistan Bureau of Statistics.  Mujtaba said that high interest rates have severely hampered industrial activities, leading to the shutdown of many industries and a decrease in production, which has left thousands of workers unemployed. “Now is the time to revive the economic activities through a steep policy rate cut,” he emphasised.

Credit: INP-WealthPk