APTMA demands 400bps rate cut in upcoming MPC

October 24, 2024 (MLN): All Pakistan Textile Mills Association (APTMA) calls upon the Monetary Policy Committee (MPC) to reduce interest rates by at least 400 basis points during its upcoming meeting on November 4, 2024.

In the current economic climate, immediate action is essential to ease the financial pressures on the industrial sector.

"We are gravely concerned by the persistently high interest rates, which remain at an excessive 17.5%. With inflation recorded at 6.9% in September 2024, this translates to a real interest rate of 10.6%, an unsustainable level given the prevailing economic conditions," the statement issued by APTMA reads. 

With inflation having steadily decreased since November 2023, the MPC must realign its monetary policy to better reflect the ongoing economic realities and provide much-needed relief to the struggling industrial sector.

As reported by the Pakistan Bureau of Statistics (PBS), inflation dropped to 11.1% in July 2024 and further to 6.9% in August 2024.

Despite this notable reduction, the MPC has been slow to make corresponding adjustments to interest rates.

The current high real interest rates are stifling economic activity, particularly for industries trying to access capital and sustain operations.

The textile sector, the backbone of Pakistan’s economy and a key driver of exports and employment has faced unsustainable borrowing costs over the past two years which have led to monumental liquidity constraints.

In this challenging environment, the lack of affordable financing is hampering businesses from securing working capital and making critical investments. If no other relief is possible, the least that can be done is to bring interest rates down to manageable levels.

High real interest rates are deterring investment across key sectors, including textiles—Pakistan’s largest export-oriented industry. Without access to affordable financing, these industries cannot expand, innovate, or compete effectively in global markets.

This puts not only export potential at risk but also threatens the livelihoods of millions of workers in the sector.

The current monetary policy stance is misaligned with efforts to stimulate economic growth. The MPC’s priority should be fostering an environment conducive to recovery. With inflation significantly down, there is ample justification for a substantial reduction in interest rates.

Such a move would relieve financial pressure on businesses, drive investment, enhance productivity, and generate employment.

In light of these factors, APTMA strongly urges the MPC to take bold and decisive action by reducing interest rates by at least 400 basis points in the upcoming meeting.

A sharp reduction is crucial to revitalizing the economy, creating fiscal space for public expenditures, and ensuring the survival and growth of critical industries.

"We call on the MPC to recognize the urgency of the situation and act in the best interest of Pakistan’s economic future," it added. 

A significant cut in interest rates is not just a preference but a necessity for the nation’s economic stability and growth.

The time has come for the MPC to align monetary policy with the ongoing inflationary trends and support the private sector in driving economic recovery.

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