Business groups reject SBP rate hold, seek single-digit interest rates to revive industry

Business and industry leaders voiced strong disappointment over the State Bank of Pakistan’s (SBP) decision to keep the policy rate unchanged at 10.5%, arguing that the move is out of step with current economic conditions and risks prolonging the slowdown in industry and exports.

Atif Ikram Sheikh, president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said the central bank’s cautious stance ignored persistent calls from industry for a substantial rate cut to support recovery. He said the business community had sought a reduction of 350 basis points to bring the policy rate to 7%, warning that high borrowing costs were exacerbating an already severe industrial crisis.

Sheikh said core inflation has remained around 5% for several months, while economic indicators point to the need for growth-oriented policy. Maintaining double-digit interest rates, he added, continues to restrict access to finance, especially for manufacturers facing elevated energy tariffs and weak demand. He warned that without a decisive correction in monetary policy, export growth and industrial expansion targets for the fiscal year would remain unattainable.

FPCCI Senior Vice President Saquib Fayyaz Magoon said Pakistan’s real interest rate remains among the highest in the region, putting local firms at a disadvantage compared with regional competitors. He said the rate hold penalises the private sector, limits financing for small and medium enterprises, and undermines export competitiveness, despite easing inflationary pressures.

Similar concerns were echoed by trade bodies in Karachi’s industrial zones. Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput said there was room for at least a one-percentage-point cut, given inflation trends and a 6% year-on-year decline in exports. He questioned the SBP’s growth forecast of 3.75% to 4.75%, calling it inconsistent with ground realities, and warned that rising imports alongside falling exports were threatening industrial viability.

SITE Association of Industry President Ahmed Azeem Alvi said even the central bank has acknowledged declining exports and rising imports, highlighting the drag from high interest rates. He argued that a cut of 100 to 150 basis points would have eased financing costs, allowed policymakers to assess the impact of cheaper credit, and supported exporters without destabilising the economy.

Other business representatives also cautioned that maintaining the current rate would delay economic recovery. Pakistan Chemical and Dyes Merchants Association Chairman Salim Valimuhammad said commercial importers feared additional strain on businesses and prolonged stagnation.

However, overseas investors offered a contrasting view. Overseas Investors Chamber of Commerce and Industry Secretary General M. Abdul Aleem said while some stakeholders may have expected a minor cut, monetary policy decisions are based on broader economic fundamentals rather than sector-specific demands. He said the economy was performing reasonably well overall and expressed support for the SBP’s decision.

Pakistan’s Monetary Policy Committee (MPC) on Monday kept the policy rate unchanged at 10.5%, defying market expectations that a further cut would take borrowing costs closer to single digits.  The decision lands in an economy that looks calmer and firmer compared to the previous quarters. Moreover, the external account has seen more diversification in the last two months. 

Headline inflation has eased to 5.6% year-on-year in December 2025, inside SBP’s medium-term target band of 5–7%, but core inflation has steadied around a higher 7.4% in recent months. At the same time, SBP says domestic-oriented sectors are driving a faster-than-expected pickup in momentum, even as import volumes rise and exports weaken, widening the trade deficit. 

For markets, the surprise is not that SBP sees risks; it is that the central bank has chosen to pause just one month after a surprise 50 basis-point cut in December, at a time when many participants were leaning toward continued easing. 

Earlier, Reuters reported a poll expectation of a 50 basis-point cut ahead of the meeting, and noted cumulative easing of 1,150 basis points since mid-2024, making Monday’s hold a clear signal that the MPC wants more evidence before it risks reigniting inflation expectations.