ISLAMABAD – The State Bank of Pakistan (SBP) is expected to announce its sixth consecutive interest rate cut after inflation has reduced. Pakistan’s inflation has eased to 4.1 percent in December, paving the way for the State Bank of Pakistan to further reduce the interest rate, which has already declined to 13 percent. In mid December, the SBP had cut the policy rate by two hundred basis points to 13 percent.
Pakistan’s kitchen inflation has hit a milestone, sinking to its lowest level in nearly a decade. The Sensitive Price Indicator (SPI) registered a 1.16 per cent year-on-year increase for the week ending January 16, 2025, the lowest since October 2014.
Business leaders have called on the government and the State Bank of Pakistan (SBP) to reduce the policy interest rate by 5 percentage points to a single-digit level of 8%, arguing that declining inflation necessitates cheaper borrowing to stimulate economic growth. Industry representatives warned that the current 13% rate is unsustainable for businesses grappling with high production costs and global competition.
Salim Valimuhammad, chairman of the Pakistan Chemicals & Dyes Merchants Association (PCDMA), has urged the governor of the State Bank of Pakistan to reduce the policy rate to a single-digit, citing a decrease in the inflation rate. This move, he believes, will boost business activities and have a positive impact on the economy.
In a statement, Chairman PCDMA emphasized that the Monetary Policy Committee should consider the decreasing inflation rate and significantly reduce the interest rate. This reduction will encourage the business community to borrow from banks at a lower cost and address the capital shortage.
He added that when interest rates were high, people invested in banks to earn higher returns. However, if the interest rate drops to a single-digit, capital will flow back to the markets and industries, reviving business and industrial activities.
Salim Valimuhammad reiterated his demand for a single-digit interest rate, stressing that if the government genuinely wants to promote business and industrial activities, it must take business-friendly measures. Otherwise, all government efforts will be in vain.
Meanwhile, President of the SITE Association of Industry Karachi, Ahmed Azeem Alvi has called for reducing the policy rate to a single digit in light of the decrease in inflation. He emphasized that providing loans at lower rates is crucial for industries to establish a presence in international markets. He stated that the State Bank of Pakistan should seriously consider this demand in the country’s best economic interests, so that the industrial community can effectively address issues such as high production costs and other financial challenges.
In a statement released on Friday, the SITE president stated that the current 13% rate is still too high. There is still significant room for reduction, as inflation continues to decrease. Despite this, it is incomprehensible that the State Bank has not lowered the policy rate to a single digit. Ahmed Azeem Alvi added that their demand is for a 5% reduction in the policy rate, as gradually lowering it would have positive effects on the national economy. This would also lead to an increase in the trend of borrowing from banks, help address the capital shortage, and significantly aid in restoring industrial activities to their normal pace.
Alvi added that reducing the policy rate would have a positive impact on the national economy, increase borrowing from banks, and help alleviate the capital shortage. He also suggested that the State Bank convene a monetary policy committee meeting every 15 days to review the inflation rate and take steps to reduce the interest rate to a single digit.
The business community would welcome such a move, as they are currently unable to borrow at high interest rates due to the severe economic crisis and rising production costs.
