Industry dismayed by policy rate status quo
The trade and industrial community has strongly reacted to the State Bank of Pakistan's (SBP) decision to leave its policy rate unchanged at 11%, which came in contrary to widespread expectations of a 50-basis-point reduction and calls for a massive cut to around 6%.
In the run-up to monetary policy announcement on Wednesday, trade bodies had been releasing statements, calling on the central bank to make a drastic reduction in borrowing cost, which would trigger growth of industries and the overall economy and give a boost to exports and employment.
In a statement, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh remarked that the business, industrial and trade community was disappointed with the monetary policy as it continued to be based on a heavy premium vis-a-vis the Consumer Price Index (CPI).
He highlighted that the CPI stood at 3.2% in June 2025 but the policy rate remained pegged at 11%, which reflects a premium of 780 basis points as compared to inflation and makes no economic sense. He pointed out that, after deliberations with different industries and sectors, the FPCCI had demanded a single-stroke rate cut of 500 basis points during Wednesday's monetary policy committee meeting.
While expressing dismay over the central bank's decision to keep the policy rate unchanged at 11%, the Pakistan Hosiery Manufacturers and Exporters Association (PHMA) highlighted the unfavourable business climate, including high interest rates, ruthless taxation and a high cost of production and utilities.
PHMA Central Chairman Muhammad Babar Khan argued that the policy rate status quo would hurt the growth of exporters and manufacturers in varying sectors. "Pakistan's policy rate is higher compared to the region, which makes it extremely challenging for exporters to compete with countries such as Vietnam, Bangladesh and India," he said.
Meanwhile, Karachi Chamber of Commerce and Industry President Muhammad Jawed Bilwani, in a statement, said that at a time when Pakistan's core inflation had significantly receded, there was no sound economic justification for keeping borrowing cost prohibitively high.
"The State Bank has cited the uptick in inflation during May and June, along with concerns over a moderate rise in the coming months due to persistent pressure on energy prices, as reasons for maintaining the policy rate. Yet, this rationale is neither convincing nor economically sound," he added.
Bilwani saw sufficient room to reduce the interest rate to single digits as many regional economies had done in similar or even more complex economic environment. "By missing this critical opportunity to lower the rate, the State Bank has dampened hopes for economic revival," he said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
10 hours ago
- Express Tribune
PSX breaks 141k barrier in volatile week
Foreign funds would divert their liquidity into buying Pakistan's stocks. This would merely increases prices of shares and be profitable for those who already hold stocks. PHOTO: FILE Listen to article The benchmark KSE-100 index at the Pakistan Stock Exchange (PSX) closed at a historic high of 141,035 points in the outgoing week, gaining 1,828 points (+1.3% week-on-week – WoW), driven by optimism about a new US-Pakistan trade agreement that cuts tariffs and boosts investment. The rally was led by oil and export goods-related stocks. Despite inflation rising to 4.1% in July, the SBP kept its policy rate unchanged at 11%. The rupee appreciated slightly to 282.72 against the US dollar, while State Bank's reserves fell $153 million to $14.3 billion. During the week, the Federal Board of Revenue (FBR) beat its tax collection target, receiving Rs754 billion in July (+14% year-on-year – YoY). Meanwhile, petrol prices dropped Rs7.54 per litre and high-speed diesel rose Rs1.48/litre. With corporate result season in full swing and attractive market valuations, sentiment is expected to stay positive, said analysts. On a day-on-day basis, another attempt went in vain on Monday, when the PSX failed to close above the key psychological level of 140,000. The KSE-100 index ended the day at 139,380, up 173 points. The market witnessed a profit-taking-cum-sector switching day on Tuesday ahead of monetary policy meeting on July 30. The index closed at 137,965, down 1,415 points. On Wednesday, the SBP surprised markets by holding policy rate at 11%, triggering a sharp dip in the KSE-100 index to the intra-day low of 137,659. However, renewed buying in banking blue-chips helped the index rebound, which closed up 447 points at 138,412. The stock market saw sharp swings on Thursday, rising to intra-day high of 140,215 (+1,802 points) and dipping to intra-day low of 139,084 (-672 points). The index eventually settled at 139,390, posting a net gain of 978 points. A strong surge in energy stocks pushed the index to a new all-time high of 141,035 on Friday, up 1,645 points. The rally was fuelled by prospects of collaboration between Pakistan and the US in oil exploration and expected circular debt payments next week. Arif Habib Limited (AHL) wrote in its weekly review that the KSE-100 index extended its upward trajectory during the outgoing week, closing at an all-time high of 141,035, a WoW increase of 1,828 points. The rally was driven by renewed optimism about international cooperation and the ongoing results season. Pakistan and the US on Thursday signed a new trade agreement, which is expected to reduce tariffs and boost bilateral investment, AHL mentioned. The State Bank, however, held its policy rate steady at 11%, citing concerns about the inflation outlook and the widening trade deficit. It pointed out that the price of petrol decreased Rs7.54 to Rs264.61/litre, while the price of diesel increased Rs1.48 to Rs285.83/litre, effective from August 1. The Consumer Price Index (CPI) for July stood at 4.1% YoY compared to 3.2% in June. Tax collection rose 14% YoY to Rs754 billion during July, exceeding the target of Rs748 billion. Meanwhile, the Pakistani rupee appreciated marginally by 0.3% WoW, closing at 282.72 to a dollar, added AHL. JS Global analyst Syed Danyal Hussain commented that after a weak start to the week, the PSX rebounded sharply in the last two sessions, closing at 141,035 points, up 1.3% WoW. The index also touched a new high of 141,161 points during the week. Average daily turnover decreased 12% WoW. The rebound was primarily driven by a historic US deal aimed at tapping Pakistan's oil reserves, which triggered a strong rally in oil stocks. Sentiment was further supported by the US reducing tariffs on Pakistan's exports to 19% from the previously announced 29% in April 2025, effective from August 2025, Hussain said. On the economic front, the State Bank kept its policy rate unchanged at 11% against market expectations of a reduction, he added.
Business Recorder
15 hours ago
- Business Recorder
FPCCI underscores need for reducing interest rate
KARACHI: The Acting President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Zaki Aijaz said that keeping the interest rate at 11% and not reducing electricity prices has worsened the economic situation. He urged the government to bring the interest rate into single digits without waiting for the new monetary policy, in order to revive the economy. Addressing press conference, he declared the country's economy to be 'dead'. He stated that due to the government's measures, the economy is unable to revive and is currently in a dead state. He further stated that after successful negotiations between the government and the business community official notifications are expected to start being issued by Monday. Zaki Aijaz claimed that the government has accepted their demands regarding Section 37AA, the two-lakh cash deposit limit, and digital invoicing. He said that Section 37AA was a major demand of the business community, and FBR has already issued a notification on it. As per the notification, a five-member committee has been formed. Regarding cash deposits over PKR 200,000, he explained that there will be no tax on such transactions if they are made through sales tax registered accounts and are properly invoiced. He also informed that the government has given time from September to December 2025 for the implementation of digital invoicing. Zaki Aijaz further revealed that the Karachi Chamber of Commerce had assured the government during negotiations that there would be no strike, but despite issuing a press release to that effect, they later called for a strike independently. Copyright Business Recorder, 2025
Business Recorder
15 hours ago
- Business Recorder
Customs Rules: PHMA expresses concern over draft amendments
KARACHI: Pakistan Hosiery Manufacturers & Exporters Association (PHMA) has taken strong notice to the FBR's notification issued vide SRO 1359(I)/2025 dated 29th July 2025 proposing draft amendments in Customs Rules 2001 to introduce draft amendments in Rule 871, 872, 876, 877, 879, 880, 882, 883 & 885 which will defeat the objective and purpose of Export Facilitation Scheme to provide a level-playing field, competitive and enabling environment to exporters to ease down their liquidity pressure and facilitate their cash-flow so that they may get new orders to enhance their exports. In a letter to Shah Faisal Secretary (Export Policy) Federal Board Revenue (FBR), Jawed Bilwani Patron in chief PHMA, Central Chairman Muhammed Babar Khan and Chairman South Zone Faisal Arshad Shaikh said that the proposed amendments tantamount to imposition of taxes and levies mainly on import of cotton yarn and grey cloth on import-stage by excluding the same from the scope of Export Facilitation Scheme. Approval and implementation of said draft amendments will shatter the hard enterprise of exporters to enhance exports, shall lead to decline in export and foreign exchange earnings due to liquidity crunch and in-competitiveness. Continuation and implementation of Export Facilitation Scheme (EFS) in its Original status and position prior to Federal Budget 2024-2025 is inevitable and lifeline to enhance national exports and the proposal of imposing taxes and duties at the import-stage for importation of materials to manufacture goods meant for exports will sabotage apparel and textile exports. In view of this PHMA conveys strong objection on subject draft amendments which are harsh and anti-export and not acceptable in order to safeguard the value-added apparel & textile exports. Any decision taken by the FBR/ Government arbitrarily and without consultation of Value-Added Apparel and Textile Exporters Association will lead to serious repercussions and will cause decline in national exports and foreign exchange earnings. PHMA further requested to immediately call broad-based meeting of all Value-Added Apparel & Textile Exporters Associations in this regard. They noted that PHMA was established in 1960, holds the distinction as premier and largest Trade Organisation representing more than 1200 exporters of Value-Added Apparel - Hosiery / Knitwear products having Association's offices in Karachi, Faisalabad, Lahore and Sialkot. The Hosiery/ Knitwear Sector alone earns approx. USD 5 billion annually for the country which includes knitted products of T-Shirts, Trousers, Hoodies, Socks, Bed-sheets, Dyed Fabric etc. and provides huge urban employment. The Hosiery/ Knitwear exports rank among top-export in the total textile as well as national exports. Copyright Business Recorder, 2025
