Frustration voiced over policy rate status quo

Business community calls on SBP to reconsider 11% interest rate policy amid growth concerns

KARACHI:

Business leaders on Monday voiced strong frustration over the State Bank of Pakistan's (SBP) decision to maintain the status quo on interest rates, announced on Monday, warning that the policy continues to choke economic growth and industrial recovery.

Echoing this sentiment, Karachi Chamber of Commerce & Industry (KCCI) President Muhammad Jawed Bilwani said, "We appeal to the central bank to act with foresight and show empathy towards the productive sectors of the economy. Pakistan cannot afford to stifle its growth potential any longer."

He expressed profound disappointment over the SBP's decision to keep the policy rate unchanged at 11%, describing it as an overly cautious and counterproductive stance given easing inflation and worsening industrial competitiveness. In a statement he said, "The business community had pinned hopes on a long-overdue reduction in the interest rate to single digits to help kick-start economic activity, reduce the cost of doing business, and support struggling industries. By choosing to maintain the status quo, the SBP has not only ignored market signals but also dampened business sentiment at a time when the economy urgently needs a boost."

He noted that inflation had clearly bottomed out, with independent analysts projecting it to remain between 6% and 7% for FY26, while both the International Monetary Fund (IMF) and the government estimate it at 7.5%. In light of these forecasts, the decision to maintain the policy rate at a high level of 11% appears unjustified. While the SBP cited the uptick in inflation to 3.5% in May as a reason, this rate remains relatively low and still provides ample room for a further reduction in interest rates - a step that, regrettably, was not taken, he lamented.

Bilwani emphasised that such high interest rates have rendered Pakistan's industrial sector uncompetitive in the regional and global markets.

"Our exporters are struggling to maintain their foothold internationally, while domestic manufacturers face increasing pressure from cheaper imports. A rate cut would have provided critical breathing space for industrial revival and job creation," he said.

Site Association of Industry (SA) Karachi President Ahmed Azim Alvi said this was a good opportunity for the SBP to reduce the interest rate to a single digit, offering hope to disappointed businesspeople and boosting economic growth. He added that the government needs competent economists and policymakers who can closely understand the fluctuations of the national economy and business environment. Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh said the industry is disappointed at the status quo in the monetary policy.

He said the business, industry and trade community of Pakistan is disappointed with the monetary policy as it continues to be based on a heavy premium vis-à-vis Consumer Price Index (CPI) and the SBP has maintained status quo in the policy rate in its Monday meeting.

He said the CPI, as per government's own statistics, stood at 3.50% in May 2025; but, the policy rate continues to be 11% as of today – which reflects a premium of 750 basis points (bps) as compared to inflation and it makes no economic sense.

He said after deliberations from the apex trade and industry platform with all industries and sectors, the FPCCI had demanded a single-stroke rate cut of 400 basis points during the Monday's monetary policy committee (MPC) meeting to rationalise the key policy rate; and, align it to the vision of special investment facilitation council (SIFC) and, the prime minister's vision for industrial development, import substitution and export growth. Sheikh noted that CPI is expected to remain between 2–4% in June–July 2025, and therefore demanded the key policy rate be cut to 7%.