Foreign investors have welcomed the State Bank of Pakistan’s (SBP) decision to raise the policy rate by 50 basis points to 12%, while business leaders have warned that the increase could undermine industrial growth, export competitiveness and economic recovery.
M. Abdul Aleem, Secretary General of the Overseas Investors Chamber of Commerce and Industry (OICCI), acknowledged the central bank’s decision, saying it was necessary to contain inflationary pressures and safeguard macroeconomic stability amid risks from elevated global energy prices.
However, he stressed the importance of sustaining the emerging recovery in investment and economic activity. Large-scale manufacturing output grew by 1.9% during July and August, while private-sector credit expanded by 14.1% year-on-year, according to the figures cited in the report.
Aleem said monetary tightening should be accompanied by targeted supply-side reforms, fiscal discipline, competitive energy tariffs, a broader tax base and predictable taxation and regulatory policies. He noted that external energy prices and domestic supply constraints were significant drivers of inflation.
FPCCI Calls for Single-Digit Interest Rate
In contrast, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh described the 12% policy rate as uncompetitive and warned that it would increase borrowing costs for manufacturers already facing high overheads, expensive utilities and liquidity constraints.
Sheikh argued that inflation was largely driven by supply-side bottlenecks, energy costs and fiscal problems rather than excessive demand. He said tight monetary policy was putting pressure on domestic manufacturing and urged the government and SBP to reconsider the approach.
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He called for the policy rate to be reduced to single digits to make credit more affordable for traders, small and medium-sized enterprises (SMEs) and large-scale manufacturers.
Sheikh also warned that high interest rates were increasing debt-servicing costs for the government and private borrowers, potentially deepening fiscal pressures and limiting industrial output. He urged the central bank to align interest rates with regional benchmarks.
KCCI Warns of Higher Business Costs
Karachi Chamber of Commerce and Industry (KCCI) President Talat Mahmood said the rate increase would raise the cost of doing business, discourage private-sector investment and weaken economic growth.
He argued that Pakistan needed to strengthen productive capacity, attract investment, create jobs and accelerate export-led growth. In his view, the higher policy rate sent the wrong signal to businesses considering new investments or expansion.
Industrial Associations Raise Capacity Concerns
SITE Association of Industry President Abdul Hadi said the rate hike would worsen the challenges facing industrial units, many of which were operating well below capacity and struggling to remain viable.
He said the business community had long called for a single-digit policy rate, but its concerns remained unaddressed. Higher rates, he added, would make new financing more expensive while increasing repayment costs on existing loans.
Hadi warned that rising borrowing costs could force formal businesses to shut down or reduce operations, affecting investment, production and industrial expansion.
Korangi Association of Trade & Industry President Sheikh Umer Rehan also expressed concern that the decision could undermine industrial activity, business growth and the economic recovery.
He said policymakers could tackle inflation through lower energy costs, tax reforms, improvements in the business environment and effective industrial policies, rather than relying primarily on higher interest rates.
Textile Exporters Warn of Competitiveness Risks
Pakistan Textile Exporters Association Chairman Rehan Naseem Bharara said the higher policy rate would increase working-capital expenses, restrict investment and weaken Pakistan’s competitiveness in international markets.
He noted that textile manufacturers were already struggling with expensive energy and financing, warning that additional borrowing costs could further constrain the sector’s ability to compete globally.
The differing responses highlight the challenge facing policymakers: balancing the need to contain inflation and preserve macroeconomic stability against calls from businesses for more affordable financing and stronger support for industrial production and exports.
