Cut interest rates to single digits, Tanveer urges SBP
He said this move would be a game-changer for the economy, stimulating growth and providing relief to borrowers.
In a statement, Tanveer emphasised the need for aggressive policies to support economic recovery. 'Single-digit interest rates are essential for economic growth and development,' he said. 'It's time for the State Bank of Pakistan to take bold action and reduce interest rates to single digits.'
He said there is an urgent need to reduce the interest rate to 6% to stimulate economic growth.
Inflation has already dropped to 4% and CPI to 0.3%, which means the current 11% rate is too high. A reduction would boost industries, make exports more competitive, and save the government Rs3.5 trillion.
Patron-in-Chief, United Business Group (UBG), Tanveer's demand comes ahead of the Monetary Policy Committee meeting scheduled for Wednesday, July 30. While analysts expect a cut of 1-1.5% in the policy rate, Tanveer is urging the central bank to go further and bring interest rates down to single digits.
The business community is eagerly awaiting the SBP's decision, hoping it will provide a much-needed boost to the economy. With inflation expected to remain under control, Tanveer believes now is the perfect time for the SBP to take action.
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SBP as per its January 28, 2022 amended 'State Bank of Pakistan Act, 1956' is mandated 'to achieve domestic price stability by way of regulating the monetary and credit system' as its 'primary objective', it also carries the role to see its contribution towards 'supporting the general economic policies of the Federal Government to foster development and fuller utilization of the country's productive resources.' In that sense, a question that needs a plausible answer is whether an over-cautious approach of SBP – both under over-board austerity minded successive IMF programmes in general, including the current EFF programme, and similar mindset reflected by SBP outside of these programmes as well — where it has over-utilised the instrument of policy rate at the back of wrongly seeing the over-board need to restrict aggregate demand, when clearly there is a strong footprint of aggregate supply side factors in determining inflation can be seen both traditionally, and especially in the wake of Covid-19 pandemic, and in an overall world of existential threat of climate change crisis. It can clearly be seen that the mandate of SBP is not just price stability, but it also has the secondary concern to target inflation in a way that allows economic development, and utilisation of 'country's productive resources'. Clearly, an over-board monetary austerity mindset, in turn, unnecessarily squeezing the aggregate demand and not placing enough emphasis on improving institutional factors on the aggregate supply side — like fixing economic institutional quality, and improving productive—, and allocative efficiencies of underlying organisations, and markets through bettering governance, and incentive structures, including regulation — has allowed the endeavour of price stability to unnecessarily result in excessive economic growth sacrifice, along with producing only short-term reduction in inflation, with secondary impacts feeding into inflation in terms of higher transaction costs, and greater inflationary built-up cost-push inflationary channel at the back of lack of aggregate supply-related focus. More broadly, protecting fiscal space, especially in the wake of heightened geopolitics related security, and greater climate change/SDGs/economic resilience related spending needs in recent times require lowering the debt burden for instance, and SBP's overcautious and lopsided approach to rely too much on policy rate to control inflation is not allowing it to play its role for overall economic development. In this regard, while the independence of SBP needs to be protected, yet greater say of government needs to be reflected through greater footprint of government in the monetary policy committee (MPC) of SBP, in addition to filling MPC with more broad-based economic thinking in terms of economic ideological representation; it appears the neoliberal-minded influence, both traditionally and currently, seems to be in majority in terms of most members of the committee apparently showing strong signs of following this school of thought, as reflected through the overall arguments in monetary policy statements in general, including the latest one. More perhaps could be learnt from the workings of Monetary Authority of Singapore (MAS) in this regard. A mind-set of shock therapy has not helped the economy. What is needed is adopting both macro- and micro-level initiatives in a more focused and innovative way. Excessive market power – for instance in the case of sugar sector – resulting in price gouging or, in other words, dealing with 'greedflation' or 'seller's inflation' requires adopting a more balanced aggregate demand, and supply side focus. External factors influencing inflation also need to be taken in the same balanced way. For instance, noted economist Isabella M. Weber along with her co-authors, in their (2025) published article 'Implicit coordination in sellers' inflation: How cost shocks facilitate price hikes' point towards the need to make microeconomic policy interventions at the sectoral level to deal with cost-push inflation that results from seller's inflation. The paper pointed out in this regard, 'we provide descriptive evidence in support of the hypothesis that economy-wide cost shocks function as implicit coordinators for price-making firms to hike prices, which translates supply shocks and commodity market fluctuations into price increases across sectors. In the absence of coordination, price-making firms risk losing market share when they increase prices. But economy-wide cost shocks signal to all firms that this is the moment to increase prices and thus coordinate pricing while the window of opportunity is open. If supply constraints occur in addition to cost shocks, that can further strengthen the coordination signal.' Moreover, the research paper recommended, among other things, the following: 'First, measures should be taken to reduce price volatility in critical upstream sectors to prevent economy-wide cost shocks in the first place… Greater regulation and oversight, sector investigations, and antitrust enforcement in too-essential-to-fail sectors can further help contain sharp price increases. Price controls can be an emergency measure of last resort, if other stabilization efforts fail. Second, policy measures can be implemented to impose a potential cost on firms that excessively hike prices in response to cost shocks.' This provides one way that rather than seeing an otherwise wrongly over-board role of interest rate as a policy instrument to control inflation, for instance, sector specific price controls can be adopted. Another way, as a complimentary step could be to adopt 'dual-track' pricing system as adopted by China during the 1980s, for instance. Copyright Business Recorder, 2025
