KARACHI:

The business community has strongly criticised the State Bank of Pakistan’s (SBP) decision to increase the key policy rate by 100 basis points to 11.5%, noting that the decision comes despite acknowledgment that inflation is expected to stay below the upper bound. The business community described the move as ill-timed, detrimental to economic growth and harmful to industrial recovery during a fragile period for the economy.

Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Rehan Hanif expressed “sheer disappointment and serious concern” over the decision, arguing that inflationary pressures before recent geopolitical tensions were relatively contained and did not justify a tightening stance. He maintained that even when inflation was lower, the policy rate remained elevated at 10.5%, which the business community had consistently termed excessive.

“There was ample room to maintain the status quo,” he said, calling the increase “imprudent and counterproductive.” According to KCCI, the hike will translate into a higher cost of doing business, discourage expansion and weaken the ability of Pakistani firms to compete internationally. The chamber reiterated its longstanding demand for a single-digit interest rate regime aligned with regional benchmarks.

Echoing similar concerns, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh rejected the central bank’s move outright, describing it as “ill-timed and unfortunate” when the economy was beginning to show signs of recovery after a prolonged stabilisation phase. He warned that continued monetary tightening could deliver a “crippling blow” to industrial output and exports.

“A high-interest-rate environment fundamentally contradicts the government’s stated goals of economic revitalisation, export growth and job creation,” Sheikh said, adding that such policies risk pushing the economy towards stagnation rather than growth.

FPCCI Senior Vice President Saquib Fayyaz Magoon also condemned the rate hike, terming it “severely damaging” for businesses already grappling with high energy costs, taxation pressures and weak demand. He cautioned that even a one percentage point increase in borrowing costs can cascade through the economy, raising production and export costs by as much as two to four percent.

“Pakistani exporters are already facing intense competition in global markets. Any further increase in the cost structure makes our products uncompetitive,” he said, urging authorities to adopt a more accommodative stance.

Industrial stakeholders highlighted that the impact would be particularly severe for small and medium enterprises (SMEs), which rely heavily on bank financing for working capital and expansion. Magoon warned that tighter monetary conditions could effectively shut SMEs out of affordable credit, leading to defaults, closures and job losses.

President of the Site Association of Industry, Abdul Rehman Fudda, highlighted that businesses are already contending with high input costs, elevated energy tariffs and subdued domestic demand.”Increasing borrowing costs at this stage will further discourage investment and tighten already constrained working capital cycles,” he said, adding that the move could stall industrial recovery and weaken business confidence.

Similarly, Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput argued that current inflationary pressures are largely driven by energy prices, taxes and supply-side disruptions linked to global tensions, rather than demand-side overheating. “These challenges require administrative and structural policy measures instead of relying solely on monetary tools,” he said.

Across the board, business leaders stressed that Pakistan’s high interest rate regime places it at a disadvantage compared with regional economies, where policy rates generally range between 5% and 8% to support growth and industrialisation. They warned that persistently high borrowing costs could lead to de-industrialisation, reduced export competitiveness and lower private sector investment.