Business Recorder
KARACHI: Business and industrial community has reacted sharply over increase of one percent interest rate, saying that increase will have negative effect on industrial growth and economic stagnation. They called upon the Prime Minister, the Federal Minister for Finance & Revenue and the Governor of the State Bank of Pakistan to reconsider the monetary policy trajectory. They demanded a comprehensive, growth-oriented macroeconomic framework that prioritises broadening of the tax-net and reduction in energy and borrowing costs for export-oriented and domestic manufacturing industries. Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) expressed his profound concerns and unequivocally rejected the decision made Monday by the State Bank of Pakistan’s (SBP)’ Monetary Policy Committee (MPC) to increase the key policy rate by 1 percent. It is ill-timed and unfortunate as the country’s economy was on a take-off stage after the stabilisation phase, he added. He said that the apex trade body had already categorically cautioned that the continued tightening of monetary policy in the country will deal a crippling blow to the country’s struggling industrial and export sectors. Pakistan doesn’t any longer need contractionary, regressive monetary or fiscal policies, he added. FPCCI Chief pointed out that a high-interest-rate environment fundamentally contradicts the government’s stated goals of economic revitalization, export growth and job creation – rendering Pakistani products uncompetitive in the regional and international markets. Sheikh strongly condemned the decision, stating that this rate hike is a harsh setback for the business community. “We have repeatedly provided the SBP and the Ministry of Finance with data showing that our industries simply cannot survive, let alone expand, under such an exorbitant cost of borrowing as we are competing with the regional economies with much lower interest rates.” He explained that instead of curbing inflation – which is largely driven by administrative energy costs and supply-chain inefficiencies – this monetary policy will only escalate the cost of doing business; choke private-sector credit even further and potentiate the pressures of de-industrialization. The government cannot rely on squeezing trade and industry while projecting economic growth, he added. However, Saquib Fayyaz Magoon, Senior Vice President (SVP) of FPCCI highlighted the disproportionate impact of this decision on small and medium enterprises (SMEs) as today’s decision will essentially shut the door on affordable access to finance for SMEs. He continued that coupled with exorbitant energy tariffs and heavy compliance costs this monetary tightening will push many manufacturers toward default or complete closures. It is impossible to achieve the Federal Board of Revenue’s (FBR) ambitious revenue targets when you are actively stifling the very engines of production. Meanwhile, Abdul Mohamin Khan, VP & Regional Chairman Sindh, FPCCI, voiced the distress of traders and industrialists of Sindh as the regional chambers and industrial estates are already reporting severe challenges. Factories operating well below their capacities will now be forced to lay-off workers; and, an increase in the interest rate today means stalled expansions and canceled orders tomorrow, he added. He said that FPCCI urgently demands that the authorities review this destructive, textbook approach to inflation management; and, instead adopt a pro-growth monetary framework that facilitates, rather than penalizes, the local industry. However, President Karachi Chamber of Commerce and Industry (KCCI), Muhammad Rehan Hanif expressed sheer disappointment and concern over State Bank’s decision to increase the key policy rate by 100 basis points, raising it from 10.5 percent to 11.5 percent. Hanif observed that prior to the escalation in tensions between the United States and Iran, inflationary pressures in Pakistan were relatively subdued and well within a manageable range. While acknowledging that inflation has experienced some upward movement following the geopolitical developments, he emphasised that the increase has not been of such magnitude as to warrant a tightening of monetary policy. He pointed out that even when inflation was on the lower side, the policy rate remained elevated at 10.5 percent, which the business community had consistently termed excessive. KCCI had repeatedly urged the central bank to rationalize the interest rate and bring it down to single-digit levels in line with regional benchmarks, but these appeals were not given due consideration. Hanif further stated that under the prevailing circumstances, there was ample room for the State Bank to maintain the status quo in the policy rate rather than resorting to an increase. He termed the decision to raise the rate as imprudent and counterproductive, cautioning that it would significantly escalate the cost of borrowing for businesses already operating under challenging economic conditions. Copyright Business Recorder, 2026
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