KARACHI: The policy rate cut of 150 basis points by the State Bank on Monday disappointed most of the industrialists as they expected that a much bigger cut would bring the interest rate down to 15 per cent.

Atif Ikram Sheikh, the FPCCI president, said the interest rate should come down to 15 per cent to enable Pakistani exporters to compete in the regional and international export markets by reducing the cost of capital.

Most of the industrialists were of the view that the core inflation should be taken as a benchmark to decide the interest rate. He said the rate cut announced on Monday was “too little, too late” since the business community had hoped for a more substantial reduction.

The business community deserves relief in the form of better access to finance from commercial banks, he added.

Saquib Fayyaz Magoon, a senior vice president of FPCCI, said the central bank should focus on core inflation rather than general inflation as the latter ignores the most “volatile components of the basket”.

Mr Magoon said despite progressive and major hikes in the policy rate from 9.75 per cent to 22 per cent over six quarters in 2022 and 2023, general inflation remained stubbornly high and didn’t respond to the policy rate.

The prohibitive 22 per cent interest rate did not only curb the growth rate but also suppressed business.

“In a country of 240 million people, the growth rate was negative in FY2023 while this year it would be around a miserable 2.4 per cent,” Mr Magoon lamented.

The business community is not hopeful about job creation with such a `forbidding policy rate’, a depressing prospect for a country where 110 million people are living below the poverty line.

The banks’ balance sheets showed that the private sector has almost stopped borrowing since FY23; only short-term borrowing at the lowest level goes on.

Exporters bemoan that they have been ousted from the international market due to a very steep cost of production. At the same time the State Bank is facing a serious challenge of external debt servicing as there are no significant inflows.

In a briefing for analysts and researchers after the monetary policy announcement, Jameel Ahmed said an inflow of $2 billion, out of the expected $10bn, is due in June and July. It will be paid back while the remaining $8bn would be rolled over, he told the researchers.

The rollover process has been initiated, he added.

Samiullah Tariq, the head of research and development at Pak-Kuwait Limited, said with a rate cut of 150bps, the growth rate would depend upon an overall economic recovery.

‘Spirits dampened’

Iftikhar Ahmed Sheikh, the President of Karachi Chamber of Commerce & Industry (KCCI), said the business community had expected a hefty slicing of 400 to 500 basis points, but a measly 150 basis point per cent cut “has dampened our spirits”.

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He was, however, hopeful that the State Bank would keep slashing the discount rate in the coming months in order to bring it down to a single digit.

The Site Association of Industry (SAI) President, Muha­mmad Kamran Arbi expressed disappointment over the ’meagre cut“, saying this was insufficient to address the challenges staring at the industrial sector.

He said the central bank should work out a roadmap for reducing the rate so that the industry no longer faces a capital shortage.

“With this roadmap the industry could shape a strategy for growth and development,” Mr Arbi said.

“We are hopeful that measures like the recent reduction in interest rates will continue and the State Bank will seriously consider our proposal to bring the interest rate down to 13-14 per cent.”

Published in Dawn, June 11th, 2024