SBP’s Unchanged Policy Rate Sparks Concerns Over Economic Impact

Karachi: Mian Zahid Hussain, a prominent business leader, has voiced concerns over the State Bank of Pakistan’s (SBP) decision to maintain the policy rate at 11.00%. He warned that the decision could harm industrial growth and the country’s export competitiveness due to sustained high financing costs and external pressures.

The SBP’s Monetary Policy Committee (MPC) adopted a cautious stance, citing external uncertainties and the need to address inflationary pressures, particularly following severe monsoon floods. While understanding the central bank’s aim for market stability, Mr. Hussain argued that the decision burdens the business community.

He noted that keeping the policy rate unchanged means businesses will continue to face high financing costs. Mr. Hussain highlighted that this decision delays the benefits of lower borrowing costs, which are essential for economic activities, despite signs of moderating core inflation.

Mr. Hussain pointed out that the central bank’s focus on preventing inflation from rising due to flood-related supply shocks could adversely affect Pakistan’s external and industrial sectors. He warned that high interest rates impede economic recovery by making local products less competitive, leading to reduced exports and a downturn in the industrial climate.

With an increasing trade deficit, Mr. Hussain, a former Provincial Minister for Information Technology, urged a shift in economic policy to support the private sector. He called for immediate measures to lower the cost of doing business, emphasizing the need to reduce interest costs and energy tariffs to earn dollars through exports and curb the trade deficit.

He concluded by urging the government and SBP to reconsider their approach, emphasizing monetary easing to stimulate investment and production, ensuring that medium-term growth is not compromised for short-term price stability.