Monetary Policy Committee urged to lower interest rates by 400bps

ISLAMABAD: In a bid to ease the financial strain on the industrial sector, the All Pakistan Textile Mills Association (APTMA) has urged the Monetary Policy Committee (MPC) to lower interest rates by at least 400 basis points at its next meeting on November 4.

Asking the MPC to reduce the discount rate, which is now at 17.5%, APTMA Chairman Kamran Arshad stressed in a statement on Thursday that the export business was extremely concerned about continuously high interest rates, The News reported.

Arshad added the real interest rate was at an unsustainable 10.6% with inflation at 6.9% as of September 2024. He emphasised that in order to give the industrial sector much-needed assistance, monetary policy must be adjusted to reflect the state of the economy.

“Inflation has been steadily decreasing since November 2023,” the APTMA chairman stated. “It’s crucial that the MPC realigns its policy to reflect these changes and supports the struggling industrial sector.”

According to the Pakistan Bureau of Statistics (PBS), inflation fell to 11.1% in July 2024 and then to 6.9% in August, Arshad stated. He said that the MPC had been sluggish to modify interest rates in light of the significant drop.

“The high real interest rates are stifling economic activity, especially for industries that need capital to sustain operations and drive growth,” he added.

The textile sector, a cornerstone of Pakistan’s economy and a key driver of exports and employment, has faced severe liquidity constraints due to unsustainable borrowing costs over the past two years. “Affordable financing is critical,” Arshad said. “If no other relief is possible, the least that can be done is to reduce interest rates to manageable levels.”

High real interest rates, he argued, were discouraging investment across key sectors, particularly in textiles.

“Without access to affordable capital, these industries struggle to expand, innovate or compete globally, endangering export potential and the livelihoods of millions of workers.

“The current monetary policy stance is misaligned with efforts to stimulate economic growth. The MPC’s priority should be fostering an environment conducive to recovery. With inflation significantly down, there is ample justification for a substantial reduction in interest rates. Such a move would relieve financial pressure on businesses, drive investment, enhance productivity, and generate employment,” Arshad noted.

He said that the APTMA was calling on the MPC to take decisive action by cutting interest rates by at least 400 basis points, arguing that a sharp reduction was essential to reviving the economy; creating fiscal space for public expenditures; and ensuring the survival and growth of critical industries.