KCCI seeks 400 bps slash in SBP policy rate

President of the Karachi Chamber of Commerce and Industry (KCCI) Muhammad Jawed Bilwani has urged the State Bank of Pakistan (SBP) to reduce its policy rate by 400 basis points (bps), citing the recent decline in inflation to a multi-year low of 4.86 per cent in November 2024.

Although the SBP has lowered the policy rate from 20.5% to 15% since the beginning of the fiscal year, it remains significantly higher than rates in regional economies such as India (6.5%), Vietnam (4.5%), and Bangladesh (10%). This disparity continues to constrain private sector borrowing and economic activity, placing Pakistan at a competitive disadvantage.

Bilwani pointed out that private sector credit in Pakistan accounts for only 12% of GDP, far below levels in India (50.1%), Turkiye (50.3%), and Bangladesh (37.6%). As of October 2024, private sector credit stood at just 24.7% of total lending, down from 28.1% in January 2023, while public sector borrowing surged to 75.3%, further restricting access to loans for businesses.

While the government has made progress in stabilizing the economy by narrowing the current account deficit and improving the stock market’s performance, challenges remain. For instance, the Large-Scale Manufacturing Index (LSMI) fell by 0.76% during July-September 2024, reflecting the negative impact of high interest rates on production costs, credit availability, and investment.

Bilwani also highlighted that the elevated interest rates have driven domestic debt servicing costs to unsustainable levels, increasing by 50.4% in FY24. He emphasized that a significant rate cut is essential to ease fiscal burdens, enhance private sector credit access, and encourage new investment to revitalize the economy effectively.