FPCCI demands a larger cut in the Policy Rate

Mr. Atif Ikram Sheikh, President FPCCI, has emphasized the urgency of a larger and more substantive cut in the key policy rate of the State Bank of Pakistan. The business, industry, and trade community, in light of the decline in core inflation to 11.8 percent in May 2024, is eagerly awaiting a more significant policy rate cut, he added.

The FPCCI President made it clear that the interest rate should come down to 15 percent to enable Pakistani exporters to compete in the regional and international export markets by substantially reducing the cost of capital. He added that this step should be accompanied by the fulfillment of the government’s promise to rationalize the electricity tariff for the industry.

Mr. Atif Ikram Sheikh maintained that consumer prices are categorically showing a declining trend. According to the Pakistan Bureau of Statistics (PBS), they fell by 3.2 percent in May 2024 compared to a decrease of 0.4 percent in April 2024. He added that 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.

Mr. 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 stabilise 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 must also play their due role.

Mr. 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.

Mr. 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.

Mr. 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 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.


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