APTMA seeks interest rate cut by 500bps

ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has urged the monetary policy committee (MPC) to enact a substantial rate cut of at least 500 basis points in the November 4 meeting.

This strong measure is essential to alleviate economic pressures on industries, provide a strong signal to investors to invest in new industrial ventures, and reduce the government’s mounting debt servicing obligations to create space for growth-oriented public spending.

In a statement, APTMA Chairperson Kamran Arshad said that with inflation falling to 6.9 per cent in September 2024 and expected to remain between 6.0 per cent and 7.0 per cent for October 2024 according to the Ministry of Finance, Pakistan’s inflation has eased to favourable levels. “This has created an unreasonably high real interest rate of 10.5 per cent against the current 17.5 per cent policy rate. Such a high real rate is without precedent in an economy with inflation easing and stabilising as seen over recent months.”

Adding to the rationale for a rate cut, he said, global oil prices have plummeted to record lows, with Brent at around $72 per barrel, significantly easing the burden of Pakistan’s import bill. With lower energy import costs, Pakistan has a unique opportunity to use this space to benefit its industrial sector, which has suffered immensely from excessive borrowing costs over the past two years.

The textile sector, an integral pillar of Pakistan’s economy, has borne the brunt of these high rates, which have led to severe liquidity constraints and restricted access to working capital. Industries have been unable to make essential investments to maintain their competitive edge in global markets, threatening not only export revenue but also the livelihoods of millions of Pakistanis. The economic and social costs of inaction are too high to ignore.

High interest rates have also compounded Pakistan’s debt servicing expenses, consuming almost the entirety of tax revenue and a substantial portion of the federal budget. With inflation firmly in check and oil prices at record lows, there is no justification for keeping real interest rates at current prohibitive levels. The time has come for a bold, decisive reduction in interest rates to reinvigorate the economy and relieve Pakistan’s financial burden.

The APTMA calls on the MPC to take advantage of this timely convergence of economic factors and implement a substantial rate cut of at least 500bps. The future of Pakistan’s industrial landscape, economic stability, and millions of livelihoods depend on this crucial policy adjustment. A significant reduction in interest rates is not merely a request -- it is an economic necessity.