BMP urges SBP to begin gradual rate cuts to revive investment, economic activity

Islamabad
As the State Bank of Pakistan (SBP) is set to announce its monetary policy decision on Monday (July 27), the Federation of Pakistan Chambers of Commerce and Industry›s Businessmen Panel (BMP) has urged the central bank to consider a gradual reduction in the policy rate, saying the economy now needs greater monetary support to accelerate industrial activity, revive private investment and strengthen export competitiveness.
In a statement issued ahead of the Monetary Policy Committee meeting, BMP Chairman and former FPCCI President Mian Anjum Nisar said the policy rate had remained at 11.5%, and the upcoming decision provided an opportunity to reassess the prevailing monetary stance in light of the evolving inflationary environment, economic recovery and business conditions.
He said the business community understood the need for monetary prudence in the face of inflationary pressures and external risks, but maintaining a high interest-rate environment for an extended period could continue to discourage private-sector borrowing, delay investment decisions and constrain expansion in manufacturing and other productive sectors.
Mian Anjum Nisar said the latest economic indicators presented a mixed picture. While headline inflation remained elevated and core inflation continued to require vigilance, a significant portion of recent price pressures had originated from food, energy, transport and administered prices, which could not be effectively addressed through monetary tightening alone.
At the same time, the recovery in economic activity remained uneven, with industrial momentum still facing challenges.
He said the central bank should distinguish between demand-driven inflation and supply-side price pressures while formulating monetary policy, as further monetary tightening could increase the cost of doing business without necessarily resolving inflationary pressures arising from energy prices, imported inputs and other supply-side factors.
The BMP chairman said there was a case for initiating a cautious and gradual easing cycle, provided inflation expectations remained anchored and external-sector conditions continued to improve.
Any reduction in the policy rate, he stressed, should be measured, data-driven and closely linked with developments in inflation, foreign exchange reserves and the balance of payments.
He said lower interest rates would help reduce the financial burden on businesses, particularly export-oriented industries and small and medium enterprises, while encouraging fresh investment in productive capacity.
This would be particularly important if Pakistan was serious about achieving ambitious export targets and reducing its dependence on external financing.
Mian Anjum Nisar said stronger exports required a competitive cost structure, and the cost of finance remained an important component of the overall business environment.
He called for a coordinated economic policy in which monetary, fiscal, energy and trade policies worked together to promote investment, industrialisation and export growth.
He also urged the government to address structural issues that continued to undermine business competitiveness, including high energy costs, taxation-related difficulties, delayed refunds, regulatory hurdles and uncertainty in economic policies.
A reduction in the policy rate, he said, would have a greater impact if accompanied by reforms aimed at lowering the overall cost of production and improving the ease of doing business.
The BMP chairman noted that improved foreign exchange reserves, healthy remittance inflows and relative stability in the exchange rate had provided some breathing space to the economy.
However, he acknowledged that risks remained, particularly from international oil prices, external debt repayments and the country›s dependence on imported energy.
He said a renewed global oil-price shock could put pressure on inflation and the external account, and the SBP should therefore remain vigilant. At the same time, monetary policy should not remain unnecessarily restrictive for an extended period because of risks that may not materialise.
Mian Anjum Nisar emphasised that Pakistan needed to move towards an investment- and export-led growth model rather than relying on repeated cycles of economic contraction and external assistance.
Businesses, he said, required a stable policy environment, affordable financing and predictable regulations to expand production, create employment and compete effectively in international markets.
He urged the SBP to consider a measured reduction in the policy rate if incoming data continued to show that inflationary pressures were manageable, while retaining the flexibility to respond if external or domestic risks intensified.
The BMP chairman expressed hope that Monday›s monetary policy decision would strike an appropriate balance between maintaining macroeconomic stability and providing sufficient support to the productive sectors of the economy.
He said Pakistan›s economic recovery could not be sustained without a meaningful revival in private-sector investment, industrial production and exports, adding that monetary policy should increasingly facilitate these objectives while keeping inflation under control.