Businesses Split Over SBP Decision To Hold Interest Rates

Pakistan's business community has expressed divided views over the State Bank of Pakistan's (SBP) decision to maintain the policy rate at 11.5%, with foreign investors backing the move as necessary for economic stability, while domestic business groups argued that high borrowing costs continue to hinder industrial growth.

The Overseas Investors Chamber of Commerce and Industry (OICCI) welcomed the central bank's decision, calling it a measured approach that acknowledges improving economic indicators while recognising that inflationary and external pressures remain significant.

OICCI Secretary General M Abdul Aleem said retaining the current policy rate would provide businesses with greater certainty as private sector lending gains pace and economic activity gradually strengthens.

He highlighted positive trends in automobile sales, cement dispatches, fertiliser demand, and overall business confidence during June.

However, he noted that headline inflation reached 11.1% in June, remaining well above the SBP's medium-term target of 5% to 7%. He added that higher global commodity prices, geopolitical tensions in the Middle East, rising food inflation, and potential fiscal risks continue to support a cautious monetary stance.

On the other hand, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) criticised the decision, describing it as restrictive and warning that elevated interest rates would delay industrial recovery.

FPCCI Acting President Saquib Fayyaz Magoon said businesses had expected a rate cut to lower financing costs, reduce the cost of doing business, and stimulate economic growth.

Instead, he argued, keeping the benchmark rate unchanged would further burden industries and exporters already dealing with expensive energy and financing costs.

"We cannot operate industries or remain competitive in international markets under such heavy financial pressure," he said, stressing that a single-digit policy rate is essential to lower production costs, make goods and services more affordable, and revive economic activity.

The Korangi Association of Trade and Industry (KATI) also voiced concern over the central bank's decision.

KATI President Muhammad Ikram Rajput said the high policy rate could further weaken industrial recovery, discourage investment, and reduce export competitiveness. He added that ongoing Middle East tensions, rising global oil prices, and broader international uncertainties continue to pose external risks, while domestic economic challenges remain equally serious.

He said increasing production costs, higher electricity and gas tariffs, and the introduction of daily fuel price adjustments have intensified pressure on manufacturers. Persistently high interest rates, he added, are discouraging fresh investment, delaying business expansion, and weakening the competitiveness of export-oriented industries.

Markaz-e-Anjuman Tajiraan Chairman Kashif Chaudhry also urged the SBP to reduce the policy rate to single digits, arguing that lower borrowing costs are necessary to revive business activity, attract investment, and generate employment.

He maintained that expensive financing would place additional strain on an already fragile economy facing challenges from US-Iran tensions, volatile international oil prices, daily fuel price revisions, rising freight charges, and higher electricity and gas tariffs.