Iftikhar Ahmed Sheikh, President of the Karachi Chamber of Commerce & Industry (KCCI), has expressed disappointment with the State Bank of Pakistan’s recent decision to reduce the interest rate by just 1 percent, bringing it to 19.5 percent. Sheikh had anticipated a more substantial decrease and argued that the rate should have been lowered by 300 to 500 basis points. In a statement released on Monday, Sheikh emphasized that a 100 basis point reduction still leaves the key policy rate excessively high.
He advocated for a more aggressive cut to bring the rate down to single digits, ideally between 7 to 8 percent, to align with regional and global standards. Such a reduction, he believes, would encourage borrowing and business expansion by reducing the cost of doing business. Sheikh acknowledged that the State Bank’s gradual easing of monetary policy, with the rate decreasing from 22 percent to 20.5 percent and now to 19.5 percent, might stimulate some economic growth and alleviate the financial burden on businesses and consumers. However, he stressed that a substantial reduction is necessary to fully support the economy and relieve the manufacturing sector, which has been adversely affected by high borrowing costs.
While recognizing the positive impact of the recent reductions, Sheikh pointed out that the significant drop in inflation was primarily due to administrative measures and improved agricultural production, rather than the central bank’s tight monetary policy.
He also noted that currency stability plays a crucial role in managing inflation, as fluctuations in the rupee’s value can directly impact prices due to the country’s heavy reliance on imports. Sheikh concluded by urging the State Bank to continue this trend of rate cuts in its next review, hoping for a reduction of at least 300 to 500 basis points, which he believes would be widely welcomed by the business community facing the challenges of high operational costs.
