LAHORE/islamabad - With weaknesses in private capital inflows continuing to persist, the business community on Monday supported the central bank’s decision to cut policy rates by 25 basis points to 5.75%, saying the decision would infuse confidence in the business community and propel economy.

However, they complained that lending to private sector by the commercial banks during the last 10 months of current fiscal year has not picked up pace.

All Pakistan Business Forum (APBF) President Ibrahim Qureshi said the State Bank governor deserved appreciation for bringing down the interest rate to 5.75%. He also called for steps to fight energy crisis, security challenges and political instability to make interest rate cut meaningful and result-oriented.

Ibrahim Qureshi said that the decision reflects coordination among important institutions but reduction in interest rate will not serve the purpose unless the pace of reforms is increased. He called for supporting large scale manufacturing and credit to the private sector which is sliding, stopping flight of capital, improving tax machinery and curbing speculation of different sectors.

GCCI president Samee Ullah Ch said that the cut in policy rate is unexpected, which seems to be a populist decision before the budget as the headline CPI inflation sustained its rising trend for the seventh consecutive month and on annual basis rose to 4.2 percent in April 2016 from the low of 1.3 percent in September 2015. In addition to the seasonal impact of perishable food items and services, this increase owes to further waning of the base effect and second round impact of decline in oil prices.

FPCCI former president Mian Idrees suggested the government to observe restraint while getting loans from commercial banks and improve governance to ensure 5.5 percent growth target which has not been achieved so far. It is unfortunate that out of 200 potential taxpayers only one submits return which forces government to impose indirect taxes hurting vulnerable and seek foreign assistance to balance the budget.

Businessmen in a meeting at Islamabad Chamber of Commerce and Industry hailed the 25 basis point cut in the benchmark interest rate bringing it down from 6% to 5.75% and termed it a positive move as it would be instrumental in reducing cost of credit for private sector and spurring economic activities in the country.

 Addressing the meeting, Atif Ikram Sheikh, President, Islamabad Chamber of Commerce and Industry said that the country has already missed the economic growth targets for the current financial year by a wide margin mainly due to depressing performance of agriculture sector and hoped that cut it policy rate to over 40-year low would support the economy to perform better.

He said the low policy rate has a direct impact on industrial growth as it reduces the cost of production and provides credit to private sector at affordable cost. Therefore, this move should help private sector in reviving the economy.

Atif Ikram Sheikh said that our textile exports have declined by 7.68 percent coming down to $10.395 billion during the first 10 months of the current year (July-April) as compared to $ 11.26 billion during the same period of last fiscal year. This has happened despite the grant of GSP Plus status to Pakistan by the EU, which should be a cause of concern for the policy makers.

However, he was optimistic that historic cut in benchmark interest rate would help the industrial sector to avail low cost credit for upgradation of technology and machinery as one of the major reasons of fall in exports was that the local industry failed to invest in modernization and diversification to explore new exports avenues.

The businessmen said that the industry was accounting for nine percent to GDP and more than 60 percent to exports, however, it was facing liquidity crunch on account of delay in export refunds of about Rs.50 billion by the FBR due to which the exporters were losing competitiveness in the international market. They urged that FBR should ensure timely clearance of refund claims to facilitate the exporters that would help them in overcoming liquidity issues and reviving exports of the country.