By Recorder Report

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KARACHI: The business community on Monday expressed dismay over the State Bank of Pakistan’s (SBP) decision to keep the policy rate unchanged at 11 per cent, arguing that it had undermined business sentiment and posed challenges for industrialists, entrepreneurs, and investors.

Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), has strongly criticised the State Bank of Pakistan’s decision to maintain the policy interest rate at 11 percent, calling it “incomprehensible” in light of the current economic conditions. He expressed deep concerns over the adverse impact of this decision on the business environment and the broader economy.

He emphasised that, given the prevailing inflation rates, the policy interest rate should ideally be reduced to a range of 6-7 percent to align with economic realities and foster growth. He highlighted that a reduction in the interest rate could have led to a significant decrease in the government’s debt burden by approximately Rs 3,500 billion – providing much-needed fiscal relief.

Sheikh highlighted that inflation has come down to 3 percent in the month of August 2025 as per the government’s own statistics. “Pakistan’s interest rate is significantly higher than those in other countries in the region,” Sheikh noted, pointing out that the elevated rate stifles economic activity and discourages investment.

He stressed that for businesses to thrive and remain competitive, the policy rate must be brought down to a single-digit figure.

However, Saquib Fayyaz Magoon, SVP FPCCI, underscored that maintaining high interest rates directly impacts production costs, which in turn fuels inflation. “A single-digit interest rate would lower production costs, making goods and services more affordable and ultimately contributing to a reduction in inflation,” he explained.

He further noted that high interest rates restrict currency circulation, hampering economic activity and growth.

He also referenced assurances from Federal Finance Minister Muhammad Aurangzeb, who had previously indicated that a reduction in the policy rate was forthcoming.

The decision to maintain the status quo; therefore, comes as a setback to the business community’s expectations, he said.

However, Abdul Mohamin Khan, VP & Regional Chairman FPCCI Sindh warned that keeping the interest rate unchanged will severely undermine the business environment, discourage investment and hinder economic recovery. He urged the State Bank to reconsider its stance and adopt measures that support businesses, reduce borrowing costs and stimulate economic growth.

He added that the business community is the backbone of Pakistan’s economy, stated. “A conducive monetary policy with a single-digit interest rate is essential to boost industrial output, create jobs and stabilize prices. We call on the State Bank to take immediate action to address these concerns and align its policies with the needs of the economy.”

President KCCI Muhammad Jawed Bilwani also voiced strong disappointment at the State Bank of Pakistan’s decision to keep the policy rate unchanged at 11 per cent, arguing that the move is at odds with the prevailing economic indicators and detrimental to growth.

He remarked that business and industry sectors had anticipated a cut given the marked decline in inflation, which, according to official estimates, has slid to near 3-4 per cent, leaving a large premium gap between borrowing costs and the actual inflation rate. By maintaining such a high rate, Bilwani argued, SBP is placing an unnecessary financial burden on businesses that are already struggling with high input costs and energy tariffs.

Bilwani further underscored that this status quo in monetary policy is hurting Pakistan’s competitiveness, particularly in comparison with regional economies.

He noted that benchmark interest rates in neighbouring countries are significantly lower, and that high domestic borrowing costs are undermining export sectors, discouraging investment, and constraining small and medium-sized enterprises. In his view, a reduction of policy rate into single digits would help reduce the cost of doing business, stimulate investment, restore investor confidence, and ultimately support industrial revival and job creation.

The Korangi Association of Trade and Industry (KATI) President, Junaid Naqi, has expressed deep disappointment over the State Bank of Pakistan’s decision to maintain the monetary policy rate at 11 percent.

He noted that with inflation currently at a historic low of 3 percent, there was ample room to reduce the policy rate. “The business community has long demanded a significant cut in the interest rate and its reduction to single digits, which is crucial to provide relief to the industrial sector,” he said.

Naqi stressed that the high interest rate continues to hurt industrialists and exporters, who are already struggling with acute capital shortages. He pointed out that Pakistan’s interest rate remains the highest in the region, creating major hurdles for investment and industrial growth.

Calling the State Bank’s decision “contrary to expectations and difficult to comprehend,” Naqi argued that a reduction in the policy rate would not only accelerate industrial activity but also significantly reduce the government’s debt burden, thereby stabilising the economy and generating employment opportunities.

“The time has come for a rate cut,” he emphasised, adding that expensive borrowing is pushing up production costs and eroding the competitiveness of Pakistani products in international markets. He warned that without cheaper access to finance, exports cannot grow and economic recovery will remain elusive.

The KATI president urged the government and the central bank to take ground realities into account, heed the business community’s genuine concerns, and make decisions that support industrial growth and ensure long-term economic stability.

However, Mian Zahid Hussain, President Pakistan Businessmen and Intellectuals Forum & All Karachi Industrial Alliance, Chairman National Business Group Pakistan, Chairman Policy Advisory Board FPCCI, and Former Provincial Minister Information Technology, expressed his dismay on the State Bank of Pakistan (SBP) to not announcing a substantial cut in its key policy rate and maintaining the rate at 11 percent. He emphasised that the current restrictive monetary policy is stifling economic growth and investment, creating an “investment famine” across the nation.

Hussain, stated, “While we appreciate the SBP’s commitment to price stability, its current policy rate of 11 percent is an unjustifiable burden on businesses and a significant obstacle to national progress”. He noted that with inflation now in single digits, the interest rate was justified to reduce to nearly 6 percent, a figure that is reasonable to compete with Pakistan’s regional competitors.

“High borrowing costs are disproportionately impacting our small and medium-sized enterprises and making it impossible for them to expand, innovate, and create jobs,” Hussain said. He reiterated the FPCCI’s demand for an immediate, single-stroke cut of up to 500 basis points, arguing that such a move was essential to rationalise monetary policy and align it with the national imperative for economic and export growth.

Copyright Business Recorder, 2025