'Essential policy cut delayed again'

Industry in uproar, says SBP is overly cautious when businesses need single digits for revival, survival

KARACHI:

The business and industrial community has reacted sharply to the State Bank of Pakistan's (SBP) decision to maintain the policy rate at 10.5%, terming it a major setback to industrial revival, export competitiveness and economic recovery. Leading trade bodies and industry associations expressed deep disappointment, arguing that the status quo reflects an overly cautious monetary stance disconnected from prevailing economic realities.

Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), described the decision as "counterproductive and strictly disappointing", stating that the business community had categorically demanded a substantive cut of 350 basis points to bring the policy rate down to 7%. He said such a reduction was essential to provide immediate relief to industry and stimulate economic activity.

Sheikh said the SBP's caution was baffling, particularly when core inflation has stabilised around 5% for several months. He said industry was battling an existential crisis due to exorbitant energy tariffs and high borrowing costs. "We needed shock therapy to kickstart the economy, but instead we received a status quo that does not move the needle on the cost of doing business," he said. He warned that the high cost of capital remains the primary driver of industrial closures and the erosion of Pakistan's export competitiveness, adding that export growth and industrial expansion targets for the fiscal year would remain unattainable without aggressive monetary easing.

FPCCI demanded an immediate review of the monetary stance, alignment of interest rates with single-digit inflation, a clear roadmap to bring the policy rate down to 7%, and the declaration of an "industrial emergency" to prevent further shutdowns of manufacturing units. Senior Vice President FPCCI and Chairman of the Businessmen Panel Progressive (BMPP) Saquib Fayyaz Magoon echoed these concerns, highlighting the unsustainably high real interest rate in Pakistan compared to regional competitors. He said that with inflation around 5.6%, the policy rate should ideally fall between 7.6% and 9.6% under standard global benchmarks. "Keeping rates in double digits penalises the private sector, restricts SME financing and undermines export competitiveness," he added.

Commercial and sectoral bodies also rejected the decision. Pakistan Chemicals and Dyes Merchants Association (PCDMA) Chairman Salim Valimuhammad said a single-digit policy rate was essential to revive economic activity, warning that high borrowing costs were putting immense pressure on commercial enterprises and delaying recovery. Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput said the decision was contrary to economic indicators, pointing to declining exports and rising imports. He stressed that affordable financing was critical for industrial survival and that high interest rates were rendering new investments and expansions unviable, particularly for small and medium enterprises.

SITE Association of Industry (SAI) President Ahmed Azeem Alvi termed the move detrimental to growth and exports, arguing that even a modest cut of 1% to 1.5% could have supported exporters and allowed the economy to test the positive impact of lower borrowing costs. From the financial sector's perspective, JS Global Research Head Waqas Ghani Kukaswadia noted that the Monetary Policy Committee cited sticky core inflation, a wide trade deficit and better-than-expected domestic growth as reasons for maintaining the policy rate. He added that the reduction in the Cash Reserve Requirement (CRR) to 5% could support private sector credit growth and improve banks' liquidity, while the unchanged policy rate helps protect bank margins.