2.5% rate cut misaligned with falling inflation: KCCI

November 05, 2024 (MLN): President of the Karachi Chamber of Commerce and Industry (KCCI), Muhammad Jawed Bilwani, while commenting on the State Bank’s decision to reduce the interest rate by 2.5%, bringing it down to 15%, stated that the actual cut of 2.5% was inadequate and did not align with the declining trend in inflation, which has now fallen to single digit.

“With a reduction of 250 basis points, the key policy rate now stands at 15%, which remains too high. It is essential for the rate to be reduced more aggressively, ideally to between 5 and 7%, in line with many other countries in the region and around the world”, he added in a statement issued on Monday.

President Bilwani emphasized that the business community wants to see interest rate dropping to single digit, as this would encourage borrowing and promote business expansion by lowering the cost of doing business, ultimately benefiting the economy.

He acknowledged the State Bank of Pakistan for continuing to ease its monetary policy, noting that this was the fourth consecutive cut, reducing the interest rate from 22% to 15%.

However, he urged for a more significant reduction to stimulate economic growth and alleviate the financial burden on businesses and consumers.

He pointed out that the tight monetary policy implemented by the State Bank of Pakistan (SBP) had led to exceptionally high borrowing costs, causing substantial harm to the economy, particularly affecting the manufacturing sector.

Therefore, a significant cut has become necessary. “We appreciate this fourth consecutive reduction in the interest rate and hope to see this trend continue, with the SBP reducing the policy rate by at least 500 basis points in its next review,” he added.

Bilwani noted that while inflation has decreased to single digit, this was not primarily due to the SBP’s tight monetary policy, but rather due to administrative measures taken by the government, improved agricultural production and descending international oil prices.

He also mentioned that the stability of the rupee was a key factor in easing inflation, as significant quantities of commodities are regularly imported into Pakistan.

“It is well-known that the devaluation of the rupee directly triggers inflation.”

Jawed Bilwani expressed hope for further reductions in the interest rate, which the entire business community would welcome, as they have been adversely affected by the excessively high cost of doing business.

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