Islamabad Chamber of Commerce and Industry (ICCI) has welcomed the 100 basis point cut in policy rate to bring it down from eight per cent to seven per cent and termed it a positive initiative as it will decrease the cost of doing business, encourage new investment and spur economic growth.
ICCI President Muzzamil Hussain Sabri, said after the recent recession, many countries made drastic cuts in policy rates to restore economic activities.
However, credit cost for private sector in Pakistan mostly remained high due to high discount rates, which was a major constraint for growth of business activities.
He said cutting policy rate to seven per cent will prove beneficial for the economy as it will decrease input cost of businesses and facilitate easy credit availability to the private sector.
He said that SBP should also ensure that banks focus on private sector lending because first requirement for the policy rate to be effective was that credit should predominantly be utilised by the private sector for boosting business activities.
He said banks’ lending to private sector decreased by over 36 per cent during the first nine months of current financial year as businesses received only Rs 178.8 billion credit from July 2014 to April 2015 as compared to Rs 281.9 billion during the same period of last year.
However, he was hopeful that with historic cuts in policy, the private sector credit will pick up pace that will help in triggering the expansion of current businesses as well as attraction of new investment.
Muzzamil Sabri said Pakistan’s industrial sector was in urgent need of balancing, modernisation and replacement of machinery and technology to produce quality products which are at par with international standards and added that a cut in interest will help them upgrade technology and machinery.
He said the large-scale manufacturing sector, which grew 2.2 per cent during the first seven months of 2014-15, will also accelerate its growth due to the rate cut and low prices of raw materials.
He, however, stressed that along with cutting the interest rate, the SBP should also ensure that banks increase their lending to the SMEs, which are the real engines of economic growth.
