KARACHI: President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) Atif Ikram Sheikh has demanded a reduction of the key policy rate to 9.0 per cent to reflect the current economic realities and indicators of Pakistan, as the Consumer Price Index (CPI) recorded a 44-month low of 6.9 per cent in September 2024.
He noted that a 9.0 per cent policy rate would still provide a 200 basis points (bps) premium, offering a safe buffer for any monetary policy targeting single-digit inflation.Sheikh called for an urgent meeting of the State Bank of Pakistan’s Monetary Policy Committee (MPC) to address the overdue reduction in the key policy rate. He expressed concern that the next scheduled MPC meeting on November 4 will be too late to provide timely relief. “We have an opportunity to significantly reduce the cost of doing business by facilitating access to finance at rational rates,” he added.
The FPCCI president explained that the economy has cooled down over the past 16 months, with inflation decreasing from 38 per cent in May 2023 to 6.9 per cent in September 2024 -- a remarkable sixfold reduction. However, he pointed out that the policy rate has only dropped by 450bps, from 22 per cent to 17.5 per cent. “This is a glaring contradiction in policymaking and economic governance in Pakistan,” he stated.
He elaborated that the government of Pakistan stands to benefit the most from a reduction in the interest rate, as a 1.0 per cent decrease translates to an approximate Rs476 billion reduction in the debt burden. Lowering the interest rate to single digits would free up government resources for development projects, financing budget deficits through indigenous resources, and spending on the welfare of the people -- such as health, education, poverty alleviation, and law and order.