KARACHI: The business community on Monday expressed disappointment over the State Bank of Pakistan’s (SBP) decision to raise the policy rate by 100 basis points (bps) to 11.5 per cent, warning that the move would deepen challenges for an already struggling industrial sector.
Atif Ikram Sheikh, president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), rejected the Monetary Policy Committee’s decision, describing it as ill-timed when the economy was beginning to recover after a stabilisation phase. He reiterated that the apex trade body had cautioned against continued monetary tightening, saying it could deal a severe blow to industry and exports.
Pakistan no longer needs contractionary and regressive monetary or fiscal policies, Sheikh said, adding that a high-interest rate environment contradicts the government’s stated goals of economic revival, export growth and job creation by making local products less competitive in regional and global markets.
He added that the rate hike would increase the cost of doing business, restrict private-sector credit and heighten the risk of de-industrialisation. Inflation, he argued, is largely driven by energy prices and supply-side inefficiencies rather than demand, limiting the effectiveness of tighter monetary policy.
FPCCI Senior Vice President Saquib Fayyaz Magoon said the decision would disproportionately affect small and medium-sized enterprises (SMEs), effectively shutting off access to affordable financing. Combined with high energy tariffs and compliance costs, he warned, the policy could push many firms towards default or closure, undermining revenue targets.
Muhammad Rehan Hanif, president of the Karachi Chamber of Commerce and Industry (KCCI), also criticised the rate increase, calling it imprudent and counterproductive. He said inflation had remained relatively contained prior to recent geopolitical tensions and had not risen to a level warranting monetary tightening.
Hanif noted that the policy rate had already been elevated at 10.5 per cent even when inflation was lower, despite repeated calls from the business community to bring it down to single-digit levels in line with regional benchmarks. He said there had been room to maintain the rate rather than increase it.
He warned that higher borrowing costs would erode the competitiveness of Pakistani businesses, discourage investment and hinder expansion. Regional economies, he noted, have maintained policy rates in the range of 5.0 per cent to 8.0 per cent despite facing similar external pressures, placing Pakistan at a disadvantage.
Muhammad Ikram Rajput, president of the Korangi Association of Trade and Industry (KATI), said the increase would raise production costs and negatively affect exports. While acknowledging inflationary pressures and external challenges, he said the decision would add to the burden on industry at a time when the economy is under strain from global tensions.
Rajput said inflation has been easing towards around 7.0 per cent, but higher interest rates would make borrowing more expensive, discouraging investment and limiting access to finance for SMEs. He added that many economies are adopting more accommodative policies to support growth, while Pakistan’s elevated rates risk constraining industrial expansion.
He emphasised that inflation cannot be addressed through interest rate increases alone, calling for supply-side reforms, lower energy costs and improvements in the business environment.
The SITE Association of Industry (SAI) also voiced concern over the decision, saying it was unexpected at a time when businesses were anticipating a move towards single-digit rates to support recovery.
SAI President Abdul Rehman Fudda said the increase would further strain an industrial sector already facing high input costs, energy tariffs, weak exports and subdued demand. Higher borrowing costs, he said, would discourage investment and tighten working capital cycles.
He added that inflationary pressures stem largely from supply-side constraints, exchange rate volatility and administered price adjustments, warning that aggressive monetary tightening risks stifling economic activity without effectively controlling inflation.
Fudda also highlighted the disproportionate impact on SMEs, cautioning that restricted access to credit could delay modernisation projects and lead to job losses. He said the decision sends a negative signal to investors and underscores the need for consistency and predictability in policy direction.
Business leaders called on the central bank to adopt a more balanced and growth-oriented monetary stance, aligned with industrial needs, and to engage stakeholders more closely in future policy decisions.
