Unchanged policy rate disappoints business community

Business Recorder

6 days ago

KARACHI: The State Bank of Pakistan (SBP) has decided to maintain the policy rate at 11 percent, disappointing business community who had anticipated a cresting reduction
Atif Ikram Sheikh, President FPCCI, apprised that 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 State Bank of Pakistan (SBP) has maintained status quo in the policy rate in its Wednesday meeting.
Sheikh highlighted that the CPI, as per government's own statistics, stood at 3.20 percent in June 2025, but the policy rate continues to be 11.0 percent as of today – which reflects a premium of 780 basis points (bps) as compared to inflation and it makes no economic sense.
He continued that after deliberations from the apex trade and industry platform with all industries and sectors, FPCCI had demanded a single-stroke rate cut of 500 basis points during the Wednesday'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.
However, S M Tanveer, Patron-in-Chief, UBG, noted that the CPI is expected to be in the range of 3–4 percent for the months of July–August 2025 as per trade, industry and economists' expectations. Therefore, he had demanded, key policy rate should have been brought down to 6 percent.
Separately, Abdul Mohamin Khan, VP FPCCI & Regional Chairman for Sindh Region, proposed that the interest rate should come down to single digit immediately to enable Pakistani exporters to some extent to compete in the regional and international export markets through reducing the cost of capital in a meaningful way.
Aman Paracha, VP FPCCI, reiterated the apex body's stance that cost of doing business, ease of doing business and access to finance in Pakistan is at the lowest as compared to all its competitors in the export markets.
Asif Sakhi, VP FPCCI elaborated that fortunately the decisive downward trend in inflationary pressures has been continuing for the past many months and the only viable solution to get back on economic growth trajectory is to support industry and exports.
Meanwhile, President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani expressed disappointment over the SBP decision to maintain the policy interest rate at an elevated 11 percent, contrary to the widespread expectation of a cut that could have brought the rate down to a single digit.
He said that at a time when Pakistan's core inflation has significantly receded, there remains no sound economic justification for keeping borrowing costs prohibitively high. 'The State Bank has cited the uptick in inflation during May and June, along with concerns of a moderate rise in the coming months due to persistent pressures on energy prices, as reasons for maintaining the policy rate; yet, this rationale is neither convincing nor economically sound.
Bilwani opined that even with inflation at its current level or marginally higher, there remains sufficient room to reduce the interest rate to a single digit, as many regional economies have done in similar or even more complex economic environments.
'By missing this critical opportunity to lower rates, the State Bank has not only dampened hopes for economic revival but also imposed a continued and unnecessary burden on an already strained private sector,' he said, adding that the decision to maintain interest rate was not only detrimental to domestic businesses, particularly SMEs and manufacturers, but also risks further stifling economic recovery, employment generation, and industrial revival.
He pointed out that across the region and in comparable economies, monetary policy easing is actively being pursued to support growth. For instance, India's policy rate stands at 6.5 percent, Bangladesh around 8.5 percent, Indonesia at 6.25 percent, while Vietnam has brought its rate down to below 5 percent; all significantly lower than Pakistan's.
He said that high interest rates have choked working capital availability, increased default risks, and escalated the cost of doing business, making Pakistani exports uncompetitive globally. 'The business community had hoped for bold, forward-looking monetary easing to complement fiscal consolidation efforts and re-ignite economic activity. The SBP's inaction instead risks prolonging stagflation, undermining job creation, and pushing more enterprises towards closure.'
However, President of the Korangi Association of Trade and Industry (KATI), Junaid Naqi expressed deep disappointment over the SBP decision to maintain the policy interest rate at 11%, stating that the move overlooks the demands and pressing concerns of the business community.
Naqi remarked that the country's economic indicators clearly justify a significant cut in the policy rate, ideally bringing it down to 6%, a level that industry stakeholders have repeatedly advocated for. 'Retaining such a high interest rate under the current economic climate is not only unjustified but will also continue to burden the already struggling industrial sector,' he said.
According to the KATI President, inflation has notably declined and has now entered single digits, while improvements in foreign exchange reserves and a narrowing current account deficit indicate a stable macroeconomic environment all of which support the case for a more business-friendly monetary policy. 'Unfortunately, the Monetary Policy Committee has chosen to ignore these indicators and has kept the rate at one of the highest levels in the region, creating further uncertainty for business.'
He warned that the high interest rate is adversely affecting small and medium enterprises (SMEs), limiting exports, discouraging new investments, and threatening job creation at a time when economic stability and growth are urgently needed. He emphasised that the private sector, especially manufacturing and export-driven industries, are under severe financial stress with no relief in sight. He appealed to the government and the State Bank to align the interest rate with the ground realities of the economy, enabling the revival of business activities and long-term economic sustainability. 'The monetary policy must now support growth instead of suppressing it.'
Meanwhile, President of SITE Association of Industry Ahmed Azeem Alvi expressed deep concern over the decision to maintain the policy rate at 11 percent. He said that by disregarding the longstanding demand of the business community to bring the interest rate into the single digits, the central bank has dashed their hopes for economic recovery and growth.
Alvi questioned the rationale behind not reducing the policy rate despite a visible decline in inflation. He urged the Finance Minister and the Governor of the State Bank to explain the justification for this decision and take the business community into confidence. 'Pakistan is currently receiving encouraging signals from the international community in the wake of its recent success in the Marka-e-Haq. At such a critical juncture, this decision seems ill-timed and presents a potential obstacle to the country's economic progress.'
He added that the nation is united, and Pakistan stands on the brink of achieving significant milestones— making this an opportune moment for bold and forward-looking economic decisions.
He hoped that the government, along with the Finance Minister and the Governor of the State Bank, would recognise the urgency of the situation, engage with the business sector, and take concrete steps towards restoring economic confidence and accelerating recovery.
However, Salim Valimuhammad, Chairman of the Pakistan Chemicals & Dyes Merchants Association (PCDMA) expressed strong disappointment over the decision to maintain the policy interest rate at 11 percent, labelling it a setback for business sentiment and industrial growth. He urged Prime Minister Shehbaz Sharif, Finance Minister Muhammad Aurangzeb, and the Governor of the State Bank to immediately review the policy and reduce the rate to a single digit.
He argued that lower interest rates are critical to stimulating economic activity, improving access to affordable loans, and fostering job creation. 'This is not a wise decision in my view, as inflation has already come down, and businesses are under enormous pressure. If such high interest rates continue, it will further burden the business community, which is already struggling.'
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