Inflation hits 30-month low; modest interest rate cut disappoints: KATI

The Korangi Association of Trade and Industry (KATI) has expressed disappointment over the State Bank of Pakistan’s recent decision to cut the interest rate by only 150 basis points, bringing it down to 20.5% from 22% after four years. KATI President Johar Qandhari noted that despite inflation reaching a 30-month low of 11%, the modest reduction in the interest rate was inadequate and failed to meet the business community’s expectations.

Qandhari highlighted the longstanding demand from business people and industrialists for a significant reduction in the interest rate, citing Pakistan’s historically high policy rate compared to the region. He argued that this high rate has contributed to inflation, increased production costs, and a shortage of capital for industrialists, making it difficult for businesses to secure affordable loans.

“With inflation dropping to 11%, we anticipated a substantial interest rate cut, ideally bringing it down to 7-8%,” Qandhari said. “However, the reduction of just 1.5% is insufficient, likely influenced by IMF pressures.”

Qandhari underscored the potential benefits of a more substantial reduction in the policy rate, which could serve as a catalyst for industrialization in the country, leading to increased job creation and economic growth. He pointed out that the current high-interest rates have been a drag on economic growth, a trend that could be reversed by further lowering the policy rate.

Qandhari expressed gratitude to the Federal Board of Revenue (FBR) for their commendable achievement of a 33% increase in revenue collection. He also acknowledged the economists’ prediction of inflation remaining at 10-11% by the end of the year, and the expected trade balance surplus by the end of the fiscal year.

Qandhari emphasized the shared responsibility of the government and the State Bank in providing relief to both the people and the business community. He urged the Governor of the State Bank to consider further reductions in the interest rate, highlighting the potential for these actions to stimulate commercial activities and foster economic growth.

Additionally, Qandhari appealed to the government to minimise the tax burden on traders, industrialists, and the general populace in the upcoming budget. He expressed hope that the government would provide significant relief in the budget, allowing people to recover from the prolonged economic crisis of recent years.

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