Business Community Urges SBP for Additional 300bps

KARACHI: Responding angrily to the 200 basis point reduction announced by the State Bank of Pakistan (SBP) on Thursday, business leaders have demanded an immediate reduction by 300bps to ease liquidity shortages across industries and trade.

On Friday, The United Business Group (UBG), comprised of top industrialists and businesspeople, released a statement which indicated that 200bps rate reduction is insufficient to promote economic growth.

“While a 200bps cut may bring temporary relief to businesses, traders, exporters, importers, and small businesses alike are experiencing severe financial strain as a result of liquidity concerns,” read the statement from Bank of Canada.

The government asserts that this crisis has exasperated an already grave situation by exacerbating its impacts; in particular, business costs increasing quickly while energy bills surge upwards to record-highs.

“While this reduction by the SBP is positive, it remains insufficient,” was the conclusion of their statement.

UBG President Zubair Tufail and other top leaders requested an additional cut of 300bps in interest rate to improve the situation, with interest rate reduction to single digits as part of an effective long-term monetary policy being developed.

The 200bps cut falls short of reality as industrial, business and trading groups remain unhappy with national monetary policies due to high costs that exceed inflation core levels.

Market forecasts predict that September’s core inflation rate should reach 8 percent, and with oil hitting three year lows and dropping below $70 a barrel this week (according to UBG), it was clear that SBP couldn’t find an excuse not to announce an impending cut of interest rates to 12pc as suggested in their statement – to allow exporters better compete internationally and regional markets.

Ehsan Malik, CEO of Pakistan Business Council, saw it as appropriate that the SBP Monetary Policy Committee decided to adopt a more cautious monetary policy by cutting rates to 200bps.

Due to inflation’s effect from delayed improvement of power tariffs as well as anticipated price rises due to recent budgetary measures and global food and fuel cost uncertainties, and inability to reach medium term goal inflation of 5-7 percent rate for medium term goals; there are compelling reasons to continue with current high interest rate policy.