The State Bank's steadfast choice to retain the policy rate at an alarming 22 percent has worried the business community, which views it as a serious threat to the investment climate. Talking to WealthPK, Ehsan Malik, CEO of Pakistan Business Council (PBC) warned that such a high policy rate was untenable for businesses and it could lead to widespread closures and a halt in new investments, posing a significant threat to the overall economic landscape. “The forward-looking positivity of the policy rate should have prompted the SBP’s Monetary Policy Committee (MPC) to consider a rate reduction,” he emphasized. Malik said there was a sense of let-down regarding the expected reduction in the key policy rate that could have offered significant relief to the industry. Johar Ali Qandhari, President of Korangi Association of Trade and Industry (KATI), issued a cautionary statement while talking to WealthPK. He expressed concern over the potential repercussions that might befall the industries if the prevailing interest rate of 22 percent was upheld. Qandhari emphasized that such a high interest rate could pose a significant threat to the survival of industries, potentially leading to their downfall.

He said the current interest rate posed a significant hurdle to economic goals, contributing to inflation and a decline in the country's growth rate. “Pakistan’s interest rate surpasses that of regional peers, resulting in higher inflation and unemployment. The State Bank should reduce the interest rate to single digit, fostering industrialization through affordable loans.” Qandhari argued that accessible financing would accelerate the industrial cycle, surpass the SBP’s current growth expectations of 2-3 percent and subsequently increase tax revenue. United Business Group President Zubair Tufail highlighted the adverse impact of 22 percent interest rate on the industrial costs. He said the interest rate had made local products uncompetitive in the global market. The high interest rate regime had further discouraged investment in the industrial sector, already grappling with high energy and raw material prices due to the rupee’s depreciation against the dollar. Concluding, he urged the State Bank to bring down the policy rate to 10-12 percent, foster an environment conducive to industry growth and attract new investments for expansion and modernization.

Credit: Independent News Pakistan (INP)