Business bodies reject SBP rate hike to 12%, warn of industrial slowdown

KARACHI (Staff Report): Pakistan’s trade and industrial bodies have strongly opposed the State Bank of Pakistan’s (SBP) decision to raise its policy rate by 50 basis points to 12 percent, warning that higher borrowing costs will increase the cost of doing business, discourage investment, weaken exports and threaten employment generation.

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Karachi Chamber of Commerce and Industry (KCCI), SITE Association of Industry (SAI), Korangi Association of Trade and Industry (KATI) and Federal B. Area Association of Trade and Industry (FBATI) have expressed serious concern over the monetary policy decision, urging the central bank and government to reconsider their approach and bring interest rates down to single digits.

FPCCI President Atif Ikram Sheikh termed the increased counterproductive, arguing that monetary tightening could undermine economic stabilisation efforts and further erode the international competitiveness of Pakistani products.

He said manufacturers and commercial enterprises were already struggling with high utility tariffs, rising operational expenses and liquidity constraints. Increasing borrowing costs further would restrict access to affordable credit, discourage investment and make it harder for businesses to sustain production and create jobs.

Sheikh argued that prevailing inflationary pressures were largely driven by structural supply-side constraints, energy costs and fiscal issues rather than excessive domestic demand. He urged policymakers to adopt a growth-oriented monetary framework and consult the business community before introducing decisions affecting economic activity.

KCCI President Talat Mahmood also opposed the rate hike, warning that raising the policy rate from 11.5 percent to 12 percent would increase financing costs and weaken private-sector investment.

He said inflationary pressures were being fuelled by higher energy and fuel prices, geopolitical uncertainty, supply-chain disruptions and rising essential commodity prices. Higher interest rates, he argued, could not reduce international oil prices or lower electricity and gas tariffs, while expensive financing could add to production costs and weaken export competitiveness.

Mahmood stressed that Pakistan needed policies supporting productive investment, industrial development and export-led growth rather than measures that could discourage businesses from expanding.

SITE Association of Industry President Abdul Hadi described the increase as particularly difficult for an industrial sector already facing severe financial pressure.

He said many industrial units were operating significantly below installed capacity amid expensive electricity and gas, high production costs and changing global economic conditions.

Hadi warned that the higher rate would make fresh financing more expensive while increasing the interest burden on existing borrowers. He said the decision could further constrain industrial expansion, discourage new investment and limit employment opportunities.

The SITE chief urged the government and central bank to address industrialists’ concerns and bring the policy rate into single digits.

KATI President Sheikh Umer Rehan said the increase could hamper industrial activity and economic recovery at a time when businesses needed affordable financing to expand production and sustain investment.

He acknowledged that the SBP was responding to inflationary pressures and external financial challenges but maintained that higher interest rates could aggravate the difficulties faced by manufacturers and small and medium-sized enterprises (SMEs).

Rehan called for reducing energy costs, improving the taxation system and implementing effective industrial policies to address the underlying drivers of inflation. He also urged the central bank to consider a gradual reduction in interest rates to support exports, investment and employment.

Meanwhile, FBATI President Syed Raza Hussain said the business community had expected the policy rate to remain at 11.5 percent, if it could not be reduced.

He warned that the increase to 12 percent would make loans more expensive, raise industrial costs and negatively affect new investments, expansion plans and production activities. SMEs, in particular, could face greater difficulties accessing credit.

Hussain urged the government and SBP to provide relief to industries through affordable financing facilities and policies aimed at improving the business environment.

The business community’s opposition highlights growing concerns over the balance between controlling inflation and supporting economic growth. While the rate increase raises the cost of borrowing, industry representatives argue that Pakistan’s high energy tariffs, taxation burden and production expenses require targeted policy measures alongside monetary tightening.

They maintain that affordable credit is essential for expanding industrial capacity, strengthening export competitiveness and generating employment, and have called on policymakers to reconsider the current interest-rate trajectory.