By Abdul Rafay
KARACHI: In a pressing call for economic reform, Muhammad Jawed Bilwani, President of the Karachi Chamber of Commerce & Industry (KCCI), has urged the State Bank of Pakistan (SBP) to implement a substantial reduction in the policy rate, proposing a cut of between 300 to 500 basis points in the upcoming Monetary Policy Committee (MPC) meeting. This request comes in light of the significant drop in inflation, which recorded a notable decrease to 6.9 percent in September 2024, marking a pivotal shift in Pakistan’s economic landscape.
In his statement, Bilwani acknowledged the SBP’s efforts to gradually lower the policy rate from 22 percent to 17.5 percent over the past three meetings. He highlighted that the recent decline in inflation signifies the second consecutive month of single-digit inflation after a prolonged period of high inflationary pressures, suggesting that a more aggressive approach to cutting the policy rate is warranted.
Bilwani emphasized that with inflation stabilizing and commodity prices under control, a drastic reduction in the policy rate is essential to relieve the burden on businesses and encourage economic activity. He argued that lower interest rates could rejuvenate growth in the large-scale manufacturing sector, which has been in decline for several months. To illustrate his point, he referred to the context of October 2021, when the policy rate was set at 7.2 percent while inflation was 9.2 percent, contrasting it with the current scenario where inflation has further decreased, warranting a more favorable interest rate environment.
The KCCI president highlighted the challenges facing the private sector due to persistently high interest rates, restricted access to credit, and onerous collateral requirements. He cited alarming statistics from the World Bank indicating that collateral for loans in Pakistan averages 153 percent of the loan value, often exceeding the borrowed amount, which severely restricts private sector financing.
