LAHORE: As the State Bank of Pakistan (SBP) is set to announced the monetary policy for the next two months on Friday, the business community has renewed its call for reduction in the cost of capital to spur growth and investment.

Speaking at a press conference at the All Pakistan Textile Mills Association (Aptma) office on Wednesday, Aptma former chairman Gohar Ejazclaimed that encouraged by the recent reduction in the interest rates the textile industry had invested $400 million in new technology during the last six months.

“Further reduction in the cost of capital will persuade more businessmen to invest in technology improvement and expansion for the revival of growth and creation of jobs in the country,” he said.

The central bank decreased its key policy rate by 250bps between August and October last year to 9.5 per cent. However, it has held the rate since and many financial analysts do not see it bringing further down the cost of capital for private investors on fears of macroeconomic stability.

The businessmen consider high interest rate as a major impediment to revival of investment in the economy and want the bank to cut its policy rate by 150bps in its next monetary policy decision to make the country’s exports competitive.

The Aptma leader argues that textile exports had increased by eight per cent during the current fiscal year on reduced interest rates and the factory owners had started to invest in balancing and modernisation of their plants for the first time in almost five years.

The investment in technology is still much below the desired level and Pakistan needs to upgrade its textile sector rapidly to catch up with its regional rivals that have invested heavily during the last five years, he added. Businessmen say the interest rates in Pakistan are still very high compared with India, China and Bangladesh. The central bank should lower its policy rate by at least 150bps this week to bring the credit cost at par with the regional economies.

Aptma Chairman Ahsan Bashir pointed out that the reduction in rates had a positive impact on the non-performing loans as well and textile industry’s NPL portfolio was going down rapidly ever since the central bank had adopted monetary easing.

He said the severe energy crisis facing the industry was an additional reason as to why the bank should cut the interest rates to provide some financial space to the industry facing huge production cuts and export losses.