KARACHI: Businessmen on Friday termed interest rate cut “too little too late”, seeking further reduction to reinvigorate the tumbling economy.
Businessmen Group Chairman Siraj Kassam Teli and Karachi Chamber of Commerce and Industry (KCCI) President Shahab Ahmed Khan expressed disappointment over a meager reduction of just one percent in policy rate by the State Bank of Pakistan.
They said long before the pandemic, KCCI consistently demanded to bring the policy rate to down to 4 percent in one go rather than in installments. Reduction in policy rate in bits and pieces did not provide the much-needed thrust to economy whereas a one-time major reduction to 4 percent could have triggered growth and accelerated economic activities.
The Federation of Pakistan Chambers of Commerce and industry President Anjum Nisar agreed the rate cut was a welcome move, “but only 100bps (basis points) cut is not enough”.
“In the prevailing circumstances, interest rate at 7 percent is not feasible for the businesses,” Nisar said. “FPCCI hopes the central bank will consider the plights of the business community and rates would be brought to 5 percent soon.”
The central cumulatively reduced 6.25 percent in interest rates from 13.25 percent since March 17, 2020. Nisar said the rate should be lowered to 5 percent. Cut in interest rate will reduce government debt burden by almost Rs330 billion, he said.
“Slashing the interest rates by 100bps reduces government mark-up payments by around Rs300 billion, while the business community gets a little respite,” he added. “The latest rate cut is not enough, as the business community was expecting at least 300bps reduction in the interest rates. There is no reason to worry as inflation has already reached below 7.5 percent.”
Businessmen said reduction in policy rate in bits and pieces is not enough to provide stimulus to the economy. Hence, it is necessary to significantly reduce the interest rate in a single step to rescue the trade and industry which is going through an unprecedented crisis.
Revision in policy rate to 7 percent effectively means that the interest rate for large scale borrowers is 8 to 9 percent after adding the bank’s spread while it is not less than 10 to 12 percent for smaller entities.
The businessmen said business and industrial community is going through difficult times and many will not be able to survive through the economic crisis. Nearly all major economies have supported businesses by reducing their policy rates to as low as zero percent realising the gravity of a global economic meltdown and its impact on businesses.
The businessmen said decision makers at the SBP and the governor do not have the perception of ground realities of Pakistan and the serious economic challenges the country will have to face in the near future if growth does not pick up soon.
They said there is now ample justification for meaningful reduction in policy rate because the inflation has declined sharply due to a steep fall in prices of crude oil, commodities and raw materials, while the demand has also been suppressed.
Therefore, it is imperative to support the business and industrial community at such a critical time through further reduction in policy rate.
KCCI expressed reservations to the Prime Minister of Pakistan on various occasions and also to Governor State Bank of Pakistan during his last visit to KCCI before pandemic about astronomically high interest rates which stifled growth and increased cost of doing business.
KCCI said the State Bank is expected to once again review its monetary policy at the earliest and revise the policy rate downward by another 300 basis points to provide much needed thrust to economy and trigger growth in the face of upcoming challenges created by Covid-19 pandemic that has affected the entire world.