Pakistan’s leading business organisations have criticised the State Bank of Pakistan’s (SBP) decision to raise its policy rate by 50 basis points to 12%, warning that higher borrowing costs could slow industrial activity, discourage investment and hamper economic recovery.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Korangi Association of Trade and Industry (KATI), Karachi Chamber of Commerce and Industry (KCCI) and SITE Association of Industry said businesses were already struggling with high energy tariffs, heavy taxation, expensive raw materials and limited access to affordable financing.
FPCCI Warns of Pressure on Businesses
FPCCI President Atif Ikram Sheikh described the rate hike as counterproductive, arguing that it could undermine economic stabilisation efforts and weaken Pakistani products’ competitiveness in international markets.
He said manufacturers and commercial enterprises were facing high operating costs and liquidity constraints, leaving them with little capacity to absorb additional borrowing expenses.
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Sheikh argued that persistently high interest rates had turned borrowing from a tool for business growth into a financial burden. He attributed inflation largely to structural supply-side constraints, rising energy costs and fiscal weaknesses rather than excessive domestic demand.
He warned that monetary tightening could penalise productive industries without addressing the underlying causes of inflation, potentially forcing formal businesses to reduce operations or shut down.
The FPCCI chief called for the policy rate to fall into single digits, saying affordable financing was essential for businesses to upgrade technology, increase value addition and compete with regional manufacturers. He also urged policymakers to consult the business community before introducing measures that affect economic activity.
KATI Raises Concerns Over Industrial Growth
KATI President Sheikh Umer Rehan warned that the 50-basis-point increase could undermine industrial activity, business expansion and economic recovery.
While acknowledging that the decision appeared to reflect inflationary pressures, the current account position and external financial challenges, he said higher interest rates would make borrowing more expensive and discourage investment in production capacity and new projects.
Rehan added that industries were already under pressure from high operating costs and global economic uncertainty, including tensions surrounding the Iran-US conflict.
He warned that increased financing costs could place further pressure on small and medium-sized enterprises (SMEs), limit job creation and slow export growth.
Rehan called for a broader approach to controlling inflation, including lower energy costs, tax reforms, business-friendly regulations and effective industrial policies, rather than relying predominantly on monetary tightening.
KCCI Says Rate Hike Will Increase Production Costs
KCCI President Talat Mahmood also opposed the increase, arguing that inflationary pressures stemmed largely from higher energy and fuel prices, geopolitical uncertainty, supply-chain disruptions and rising prices of essential commodities.
He said higher interest rates would increase financing costs without directly addressing international oil-price movements, expensive electricity and gas tariffs or supply-chain problems.
Mahmood warned that more expensive borrowing could raise production costs, push up prices of locally manufactured goods and weaken their competitiveness in overseas markets.
He urged policymakers to adopt a balanced, growth-oriented approach that controls inflation without compromising industrial development and business sustainability.
SITE Association Warns of Financial Strain
SITE Association of Industry President Abdul Hadi described the rate increase as an additional setback for manufacturers already facing severe financial pressure.
He said many industrial units were operating well below their installed capacity while struggling with expensive utilities and changing global economic conditions.
Hadi warned that the increase would make new financing harder to secure while raising interest payments on existing loans. He said the additional burden could intensify financial stress, discourage investment and further weaken industrial growth.
The business organisations’ concerns centre on whether tighter monetary policy can contain inflation without placing further pressure on manufacturing, employment, exports and private-sector investment.
