KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh has urged the State Bank of Pakistan (SBP) to immediately bring down its policy rate to 15 per cent to enable local exporters to compete on the regional and international markets with reduced cost of capital.

He added that this step should be accompanied by fulfilling the government’s promise to rationalise electricity tariffs for the industry and renegotiating contracts with independent power producers (IPPs).

In a statement issued on Monday, he said the policy rate cuts announced over the last two monetary meetings are too little, too late, as the business community was expecting higher and substantive cuts instead of the meagre 150bps cut on June 10 and 100bps on July 29 to 19.5pc.

The business community’s expectations stem from the massive deceleration in the core inflation, which has remained within 11.8-12.6pc for the past many months, thus making a case for immediately bringing down the policy rate, the FPCCI chief said.

Apex chamber demands immediate rationalisation of industrial power tariff

He reiterated that the ease of doing business and access to finance in Pakistan is at the lowest compared to all its competitors in the export markets. “We cannot continue to have a monetary policy on a huge premium to core inflation,” he added.

Mr Ikram asked the government to provide answers to the queries as to what measures are being undertaken to obtain the new IMF programme, how they would affect the cost of doing business in Pakistan, what steps will be taken after reaching a Staff-Level Agreement with the IMF to stabilise the economy and how and when the government plans to take the business community into confidence on these measures.

FPCCI Vice President Nasir Khan said the SBP should immediately focus on core inflation rather than consumer price index-based inflation as these exclude the basket’s most volatile and irrelevant components, i.e., food and energy, vis-à-vis policy rate. The government must ensure the effectiveness of price control measures through vigilant actions against hoarding, price gouging and malpractices.

Despite the progressive and significant hikes in the SBP policy rate from 9.75pc to 22pc over six quarters in 2022 and 2023, he said, the CPI inflation remained stubbornly high and didn’t respond to these rate hikes.

He stressed that despite completing the IMF Stand-By Arrangement and 22pc policy rate, Pakistan remains overwhelmed with dwindling exports and economic instability. This phenomenon establishes that the government needs to employ other policy tools to tame inflationary pressures.

Published in Dawn, August 27th, 2024