Steelmakers call for emergency cut in SBP rates

ISLAMABAD: The Pakistan Association of Major Steel Producers (PALSP) on Monday urged the State Bank of Pakistan (SBP) for an emergency rate cut as the industry was poised to survive due to the devastation caused to the economy by the devastating floods.

PALSP, in a statement, said the economic situation was worse than it was during the Covid era, so more drastic measures were needed to help the industry survive. “Our association represents over 70% of the country’s long steel production and it is sad to say that today the majority of our members are in dire straits due to the economic hardship created by record flooding associated with other factors.”

The association said immediate action was needed to protect “millions of jobs and avoid social unrest in the country”. The cost of flooding to the economy could exceed $40 billion. These effects were only beginning to be felt as large-scale manufacturing contracted by a record 16.5% in July, according to the PALSP statement.

“Keeping interest rates high for a decade makes no sense as there is a contraction in demand across the board due to the floods. Commodity prices are down, oil prices are down and we are in a state of economic emergency, this is the time when SBP must act boldly to avoid social unrest and instability,” he added.

The policy rate is currently at 15%, the highest in two decades (last seen in April 1999). Experts believe the unsustainable 15% benchmark interest rate was unsustainable for industries, he noted.

Compared to other countries in the region, such as Malaysia, where the benchmark interest rate was 2.5%; Bangladesh where it was 3.08%; and in India where it stands at 5.9%, the PALSP statement urged the SBP to cut the interest rate in Pakistan.

It should be noted that the People’s Bank of China cut its rate on a one-year loan to 2.75% from 2.85% and pumped an additional 400 billion yuan ($60 billion) into the lending markets. after weaker growth in industrial production and retail sales in July. and home sales fell by double digits.

“We call on the Honorable Federal Minister of Finance and Revenue, Senator Muhammad Ishaq Dar and the SBP to act now,” he urged.

PALSP further noted that in other economies such as the UK, core inflation stands at 9.9% and the monetary policy rate at 2.25%, which means a rate of negative real interest of 7.65%.

It would be safe to note that the UK has announced a £150bn energy subsidy package, while Germany has rolled out €200bn of economic stimulus. However, Pakistan’s core inflation stands at 13.8% for September and the CPI has softened month-on-month, with the regional interest rate averaging 3.82% .

Therefore, he said Pakistan’s discount rate should be reduced to 8% with immediate effect and further reduced in the coming quarters to a maximum of 6.15% Kibor. The steel industry, which used to be a capital-intensive business, was already facing a severe shortage of cash, as many small and medium-sized factories have already closed.

If interest rates were not lowered, the structural damage to the industry would persist for decades. He also pointed out that to rebuild 400 damaged bridges and 3,000 km of roads, steel would be an important construction material, which would be difficult to find if the steel mills were not operational. He urged the SBP to make emergency rate cuts to keep steel mills viable.

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