KARACHI: The business community, which was expecting at least 200 basis points reduction in the interest rates, expressed dissatisfaction over the nominal 75 basis points cut to 12.5 percent. The market is almost unanimous that such a nominal cut would not help in the prevailing circumstances.

Economist Asad Saeed said the currency was devaluing, and within their framework, the central bank could not do much. “In my opinion the entire model is wrong. The inflation targeting does not give the right idea as we have supply based inflation, not demand pushed.”

“The entire dynamics have changed under the COVID pandemic. It wouldn’t matter if the central bank reduced the rates by 300 basis points, because all the investment plans are being put on hold.”

Mian Anjum Nisar President, Federation of Pakistan Chambers of Commerce and Industry said that the SBP decision seems totally against the global wisdom under prevailing drastic conditions of the life threatening disease caused by COVID-19.

“Global think tanks and large number of countries are supporting economic activities by introducing ease of doing business and market expansion policies, while SBP ignoring the current devastating conditions around the world that would affect Pakistan’s exports”

Mian Anjum Nisar said there were strong reasons for lowering interest rates to single digits as oil prices are continuously declining inflation is also going down hence significant cut in the interest rate has become essential which is the demand of the current global situation as well as protection of the national trade and industry..

President Karachi Chamber of Commerce and Industry (KCCI) Agha Shahab said 75bps cut was way below expectations of 200bps cut. “It would have been better to keep the status quo, as such a nominal decrease would serve no purpose.”

He said interest rates in Pakistan were highest in the region due to which local industry was already struggling to compete with the peers. “I am sure the economists are also confused on central bank’s approach.”

“It is time that the authorities take decision on the basis of ground realities. Bookish approach cannot be applied in every situation all the time. Authorities should bring the interest rates to single digit in order to keep the industry running and avoid further unemployment.”

State Bank of Pakistan’s Monetary Policy Committee noted that the outlook for inflation had improved in light of the recent deceleration in domestic food prices, significant decline in consumer price expectations, sharp fall in global oil prices, and slowdown in external and domestic demand due to the Coronavirus pandemic.

Former Senior Vice President Mirza Ikhtiyar Baig said the decline of just 75bps was a disappoint for the entire business community, which was expecting a more significant cut in the key policy rates.

“The inflation has eased by around 200 basis points, and the central bank should have reduced the rates by around 200 bps. It was a good opportunity to support the investment, stock market and overall business, and it was missed,” Baig said.

Analyst Khurram Shahzad said the central bank’s decision was not comprehendible.  “Inflation is going to go massively down, current account deficit is already down, oil is declining to benefit for about $8 billion. We badly need fiscal support for masses, as consumption is going to be hit because people are now sitting home for an unidentified period.”

“Hotels are closed, educational instructions are closed; airlines are going down, malls, cinemas and markets are closing down, then what will we achieve to keep rates so high,” Shahzad noted.

It may be mentioned here that over 20 countries in the world have slashed the interest rates to bottom, while US Fed cut it to zero, first time in their recent history.

Managing Director KASB Securities Arslan Soomro favored the decision saying the central bank keep interest rates up for now.

“US Fed is cutting rates massively so the carry-trade remains attractive. However, ease faster than necessary amidst a panic and you shall see more outflows and more pressure on currency, which would ensue undoing the medium term inflation target of 5-7 percent”.

“The collapse in oil prices is here to stay in the new-normal range of $40-45/barrel after Russia/ Saudi eat US Shale’s market share. That is yet to be translated and easing can follow up in May as well. Why rush?,” Soomro noted.