FPCCI chief disappointed over meager cut in policy rate

Interest rate should come down to 15 percent to enable Pakistani exporters to compete in regional and international export markets

ISLAMABAD   -   FPCCI President Atif Ikram Sheikh has said that the policy rate cut announced Monday is too little and too late as the business, industry and trade community was expecting higher and more substantive cut in the key policy rate of the State Bank of Pakistan vis-à-vis decline in core inflation.

It is pertinent to note that core inflation has come down to 11.8 percent in May 2024, which is the lowest in the 30-month period, he added, FPCCI president made it clear that interest rate should come down to 15 percent to enable Pakistani exporters compete in the regional and international export markets through reducing the cost of capital substantially. This step should be accompanied with the fulfillment of government’s promise to rationalize electricity tariff for the industry, he added.

Atif Ikram Sheikh maintained consumer prices are categorically showing a declining trend as they fell by 3.2 percent in May 2024 compared to a decrease of 0.4 percent in April 2024 as per Pakistan Bureau of Statistics (PBS). It is now overdue to provide respite to the business community in their access to finance from commercial banks through effectively and appropriately cutting the key policy rate, he added.

Atif Ikram Sheikh, as President FPCCI, the apex trade & industry body of Pakistan, has questioned the seriousness of government, on behalf of the entire business, industry and trade community of Pakistan, in bringing transparency & consultation in the economic policymaking; and, has reiterated his stance that the government should provide answers to the two sets of questions for businesses to plan their year ahead: (i) what are the measures that are being undertaken to obtain the new IMF program and how would they affect cost of doing business in Pakistan (ii) what steps will be taken after the signing of IMF program to stabilize the economy and how & when the government plans to take the business community into confidence on these measures.

FPCCI chief proposed that to promote price stability, FPPCI emphasizes that the SBP needs to break the inflation rate into cost-pushed and demand-pulled. It is recommended that the SBP should target core inflation; non-food non-energy (NFNE); for operational guidance. The SBP needs to strip out volatile changes in particular prices to distinguish inflation from temporary fluctuations in inflation. Efforts need to be made to control price manipulation and hoardings in liaison with the respective federal and provincial government departments. An active and efficient Competitive Commission of Pakistan (CCP) and effective price control mechanisms also need to play their due role.

Saquib Fayyaz Magoon, SVP FPCCI, said that SBP should focus on core inflation rather than general inflation on an immediate basis as these exclude the most volatile components of the basket. The government must ensure the effectiveness of price control measures through vigilant actions against hoarding and malpractices. Magoon explained that despite the progressive and major hikes in the policy rates from 9.75 percent to 22 percent over a period 6 quarters in 2022 and 2023, general inflation remained stubbornly-high and didn’t respond to the policy rate.

Saquib Fayyaz Magoon stressed that despite the successful completion of IMF Stand-by Agreement (IMF-SBA) and 22 percent policy rate, Pakistan remains overwhelmed with issues of dwindling exports and economic instability. This phenomenon well-establishes the fact that the government needs to employ other policy tools to tame the economic volatility. Investment friendly policies should be introduced to protect the economy from further damage, he added.

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