KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani, while expressing strong disappointment over the State Bank of Pakistan’s (SBP) decision to implement a nominal reduction of just 1 percent in the policy interest rate, criticized the move as insufficient to address the prevailing economic challenges and unlock the country’s growth potential.
The decision, according to President Bilwani, reflects a lack of urgency in addressing the critical financial and economic issues faced by businesses, particularly small and medium enterprises, across the country. “Despite Prime Minister’s assurances of bringing the interest rate down, the SBP has kept it to 12 percent, which the business community is unable to understand”, he added while referring to KCCI’s discussions with the Prime Minister on this particular issue.
President KCCI pointed out that businesses are operating under severe strain due to an unprecedented increase in input costs, including energy tariffs, fuel prices, and raw material costs, coupled with a volatile exchange rate. In this context, the high interest rates have exacerbated the financial burden, making it nearly impossible for businesses to access affordable credit for working capital and expansion, he said, adding that the nominal cut in the policy rate fails to provide the relief that the business community has been advocating for and falls short of creating a conducive environment for economic recovery.
He emphasized that the recent decline in inflationary pressures provided ample room for the State Bank to implement a more aggressive cut in interest rates. Notably, Pakistan’s annual consumer price inflation rate dropped to 4.1 percent in December 2024, the lowest level in more than six years. This significant decrease from the multi-decade high of around 40 percent in May 2023 is attributed to a stable currency, lower global commodity prices, and improved supply chains.
He was of the view that a meaningful reduction in the policy rate would have sent a strong signal to investors, both domestic and international, that Pakistan is committed to fostering a business-friendly environment. Instead, the marginal adjustment appears to be a cautious and overly conservative approach that does little to address the underlying economic stagnation.
President KCCI further noted that Pakistan’s policy rate remains significantly higher than its regional counterparts, placing local businesses at a distinct disadvantage in terms of cost competitiveness. In India, for example, the policy rate stands at 6.50 percent, as they have adopted a proactive monetary policy to stimulate industrial growth and attract investment, while Pakistan’s restrictive monetary policy continues to hinder economic progress and exacerbate unemployment.
He also highlighted that high interest rates discourage investment in productive sectors and push investors towards speculative markets such as real estate and foreign exchange, further straining the economy. The lack of affordable credit has severely impacted industries, especially export-oriented sectors, at a time when enhancing exports is critical for addressing Pakistan’s balance of payments crisis. “A substantial reduction in interest rates would have provided relief to businesses, encouraged investment, and helped stimulate consumer demand.”
Additionally, Bilwani noted that international financial institutions, including the International Monetary Fund (IMF), have recognized the importance of aligning monetary policies with growth objectives. While fiscal discipline remains crucial, there is an urgent need for policies that prioritize economic activity and employment generation. The SBP’s cautious approach, however, reflects an over-reliance on inflation targeting without adequately addressing growth and employment concerns.
President KCCI called for a more holistic and pragmatic approach to monetary policy, one that aligns not only with the region but also with the government’s broader objectives of economic growth, export enhancement, and employment generation.
ADVERTISEMENT
