Prominent economists and business leaders across Pakistan are raising a unified call for a significant shift in the country's monetary stance. They argue that the current tight policy, maintained by the State Bank of Pakistan (SBP), is now stifling economic growth and must be softened to provide much-needed relief to businesses and consumers.
The Case for Policy Easing: Falling Inflation and High Costs
The core of their argument hinges on recent economic data. Experts point to a sustained decline in the inflation rate, which has retreated from its previous peaks. This development, they contend, creates the necessary room for the central bank to start reducing its key policy rate, which has been held at a historically high level for an extended period.
The high cost of borrowing is identified as a major bottleneck. With businesses facing exorbitant interest rates on loans, expansion plans are shelved, new investments are discouraged, and job creation suffers. This creates a cycle of stagnation that hampers overall economic recovery. The situation is particularly acute for the industrial and manufacturing sectors, which are crucial for exports and employment.
Potential Impact on Business and Investment
A softer monetary policy would have immediate and far-reaching effects. Lower interest rates would reduce the cost of capital for companies, enabling them to finance new projects, upgrade machinery, and increase production capacity. This would not only boost industrial output but also improve Pakistan's competitiveness in international markets.
Furthermore, easier credit conditions would stimulate consumer spending. When loans for automobiles, housing, and consumer durables become more affordable, demand increases, which in turn drives production and economic activity. This multiplier effect is essential for pulling the economy out of a low-growth trap.
Risks and the Path Forward
While advocating for easing, analysts acknowledge that the SBP must proceed with caution. The primary risk is reigniting inflationary pressures, which have only recently begun to subside. Therefore, any policy shift must be gradual, data-driven, and carefully calibrated to support growth without compromising price stability.
The consensus among experts is clear: the priority for monetary policy must now pivot from solely combating inflation to actively fostering economic expansion. With inflation showing signs of control, the opportunity to stimulate growth through lower interest rates should not be missed. The upcoming meetings of the SBP's Monetary Policy Committee will be closely watched for signals of this anticipated shift, which could define Pakistan's economic trajectory for the coming year.
Key recommendations from the business community include:
- A gradual reduction in the central bank's policy rate.
- Special financing schemes for export-oriented and small-to-medium enterprises (SMEs).
- Measures to ensure improved credit flow to the private sector.
