Interest rate cuts fail to stimulate private sector borrowing

The private sector has yet to begin borrowing from banks this fiscal year, despite a 2.5 per cent cut in the interest rate aimed at diverting liquidity towards economic growth. According to the latest data released by the State Bank of Pakistan on Tuesday, the private sector remained cautious over the last 47 days, with a net debt retirement of Rs333 billion. Throughout the previous fiscal year (2023-24), the State Bank faced significant pressure to reduce the interest rate, as the previous 22pc rate severely hampered economic growth and led to widespread unemployment. With inflation on the decline, the State Bank was able to reduce the interest rate twice, bringing it down from 22pc to 19.5pc. However, the latest data shows that the private sector remains reluctant to borrow at the current 19.5pc interest rate. Bankers said that this rate is still too high for the private sector, as the cost of doing business would likely result in losses. Additionally, banks are wary of the increased risk of defaults at this rate.