FPCCI welcomes key policy rate cut by 1pc

FPCCI welcomes key policy rate cut by 1pc, demands further drop Mian Anjum Nisar asks SBP to advise banks to revise KIBOR on monthly basis to pass on lower rates benefit to industry.

The Federation of Pakistan Chambers of Commerce and industry (FPCCI) president Mian Anjum Nisar on Friday appreciated the State Bank of Pakistan for slashing key policy rate by 100 basis points to 7 percent in an unscheduled meeting of Monetary Policy Committee which has so far slashed the key interest rate by 6.25 percent from 13.25 percent since March 17, 2020.

He said the rate cut is a welcome move, but only 100bps (basis points) cut is not enough. In the prevailing circumstances, interest rate at 7 percent is not feasible for the businesses, he said. “FPCCI hopes the central bank will consider the plights of the business community and rates would be brought to 5 percent soon,” he added. He said that the businessmen’s apex body welcomes the central bank’s move to cut the interest rates by 1 percent, urging it to bring discount rate to at least 5 percent in line with global financial trend. “This is commendable step of the State Bank, as it has now started shifting toward supporting trade and industrial growth and employment generation which is not possible without sizeable cut in key policy rate,” he added. He said that the banks should now also be advised to follow the lines of SBP immediately accordingly.

“The banks should be instructed to revise KIBOR on a monthly basis instead of quarterly basis to pass on the benefit of lower rates speedily to the trade and industry, which are struggling to survive, Mian Anjum Nisar suggested and added that the impact on banks on their deposits will be insignificant.

FPCCI President said that the reduction in policy rate by 6.25 percent since March 17, 2020 is commendable step of the government in the present situation that will positively affect cost of doing business and will encourage the investors and industrialists to make new investment in the country. The president FPCCI also said that the pandemic COVID-19 has affected the global economy and pushed to the depression resulting contraction in the economic activities and a threat to unemployment.

He asked the SBP to go the extra mile in these arduous times and leave no stone unturned in providing relief to the financially distressed businesses. This cumulative reduction of more than 6 percent in interest rate in just limited period would cut cost of production, strengthen debt repayment ability and improve the credit worthiness.

He said that as per estimates August inflation numbers will be below 5 percent due to high base effect and depressed demand due to lockdown and other negative effects of COVID-19. Any rise in prices due to supply shocks will not be supported by second wave of inflation, he added.

Moreover, the external risk is managed because of partial foreign debt rescheduling, disbursement of 1.38 billion dollar under RFI and over 70 percent reduction in current account deficit. So, with both demand driven and import based inflation in check there is every reason to gradually bring down the interest rates when the case for immediate relief is apparent.

In light of positive developments, FPCCI urges the central bank rather than lowering the rate to 5 percent in stages to immediately cut the rate by another 300 bps especially when it is supported by strong rationale, he added. He said that the benchmark interest have reached almost two-years low and the cut in interest rate will reduce government debt burden by almost Rs.330 billion.

He said slashing the interest rates by 100bps reduces government mark-up payments by around Rs. 300 billion, while the business community gets a little respite. He said the latest rate cut is not enough, as the business community was expecting at least 300bps reduction in the interest rates. There is no reason to worry as inflation has already reached below 7.5 percent,” he said.