KARACHI: Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), has called on the State Bank of Pakistan (SBP) to promptly reduce its policy rate to 15% to help local exporters remain competitive in both regional and international markets by lowering the cost of capital.
Sheikh also emphasized the need for the government to fulfill its commitment to rationalize electricity tariffs for the industry and renegotiate contracts with independent power producers (IPPs).
In a statement released on Monday, Sheikh criticized the recent policy rate reductions, which included a modest 150 basis points cut on June 10 and a 100 basis points cut on July 29, bringing the rate down to 19.5%. He argued that these cuts were insufficient and too late, given the persistent core inflation rates of 11.8-12.6% over recent months, which he believes justify a more substantial rate reduction.
He highlighted that the current monetary policy remains significantly above core inflation rates, adversely impacting the ease of doing business and access to finance in Pakistan compared to its export competitors.
Sheikh urged the government to clarify its plans for securing a new IMF program, its impact on business costs, and the measures to be taken following a potential Staff-Level Agreement with the IMF to stabilize the economy. He also called for more transparency regarding how these measures will involve the business community.
FPCCI Vice President Nasir Khan suggested that the SBP should focus on core inflation rather than the consumer price index (CPI)-based inflation, which excludes volatile components such as food and energy. He stressed the need for effective price control measures to address hoarding, price gouging, and other malpractices.
Despite significant increases in the SBP policy rate from 9.75% to 22% over the past six quarters, Khan noted that CPI inflation has remained persistently high. This situation, he argued, indicates that alternative policy tools are needed to effectively manage inflationary pressures and address Pakistan’s economic instability.
