Business Leaders Criticise SBP for Holding Interest Rates

Business and industrial leaders expressed strong frustration over the State Bank of Pakistan’s (SBP) decision to maintain the policy rate at 10.5%, arguing that the move is misaligned with prevailing economic realities and could further prolong the slowdown in industrial activity and exports.

Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said the central bank’s cautious approach disregarded repeated appeals from industry for a meaningful rate cut to revive growth. He said the business community had pushed for a 350 basis-point reduction to bring the rate down to 7%, warning that persistently high borrowing costs were deepening an already acute industrial crisis.

Sheikh noted that core inflation has hovered near 5% for several months, while broader economic signals point toward the need for a growth-focused monetary stance. Keeping interest rates in double digits, he added, continues to choke access to credit, particularly for manufacturers grappling with high energy costs and subdued demand. Without a decisive shift in policy, he warned, export growth and industrial expansion targets for the fiscal year would remain out of reach.

FPCCI Senior Vice President Saquib Fayyaz Magoon said Pakistan’s real interest rate is among the highest in the region, leaving domestic businesses at a competitive disadvantage. He said holding the rate steady penalises the private sector, constrains financing for small and medium enterprises, and weakens export competitiveness despite declining inflationary pressures.

Concerns were echoed by trade associations in Karachi’s industrial areas. Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput said inflation trends justified at least a one-percentage-point cut, especially amid a 6% year-on-year fall in exports. He questioned SBP’s growth projection of 3.75% to 4.75%, calling it disconnected from on-ground realities, and cautioned that rising imports alongside shrinking exports were threatening industrial sustainability.

SITE Association of Industry President Ahmed Azeem Alvi said the central bank itself has acknowledged weakening exports and increasing imports, underscoring the drag caused by elevated interest rates. He argued that a 100 to 150 basis-point cut would have reduced financing costs, allowed policymakers to gauge the impact of cheaper credit, and supported exporters without destabilising the economy.

Other business representatives also warned that keeping rates unchanged would delay economic recovery. Pakistan Chemical and Dyes Merchants Association Chairman Salim Valimuhammad said commercial importers feared added pressure on businesses and an extended period of stagnation.

Overseas investors, however, offered a different perspective. Overseas Investors Chamber of Commerce and Industry Secretary General M. Abdul Aleem said that while some stakeholders anticipated a modest cut, monetary policy decisions must be guided by broader macroeconomic fundamentals rather than sector-specific demands. He said the economy was performing reasonably well overall and backed the SBP’s decision.

Pakistan’s Monetary Policy Committee (MPC) on Monday left the policy rate unchanged at 10.5%, defying market expectations of another cut that would have pushed borrowing costs closer to single digits. The decision comes at a time when the economy appears steadier compared to previous quarters, with the external account showing greater diversification in recent months.

Headline inflation eased to 5.6% year-on-year in December 2025, within SBP’s medium-term target range of 5–7%, while core inflation has remained elevated at around 7.4%. Meanwhile, SBP says domestically oriented sectors are driving a faster-than-expected pickup in momentum, even as rising imports and weakening exports widen the trade deficit.

For markets, the surprise was not the risks flagged by SBP, but the decision to pause just one month after an unexpected 50 basis-point cut in December, at a time when many participants were expecting continued easing.

Earlier, Reuters reported that a poll had anticipated a 50 basis-point cut ahead of the meeting, noting cumulative easing of 1,150 basis points since mid-2024. Monday’s decision, however, signalled that the MPC wants clearer evidence before risking a resurgence in inflation expectations.