Foreign investors support SBP's policy decision, local businesses warn of slower economic recovery

Pakistan's business community gave a mixed response to the State Bank of Pakistan's (SBP) decision to keep the policy rate unchanged at 11.5%, with foreign investors supporting the move as a prudent step to safeguard economic stability, while local trade and industry bodies criticised it for keeping borrowing costs too high.

The Overseas Investors Chamber of Commerce and Industry (OICCI) welcomed the decision, describing it as a balanced approach that reflects improving macroeconomic conditions while recognising that inflation and external risks remain elevated.

OICCI Secretary General M Abdul Aleem said maintaining the current policy rate would provide businesses with stability at a time when private sector credit is gaining momentum and economic activity has started to recover. 

He pointed to improvements in automobile sales, cement dispatches, fertiliser offtake and business sentiment during June.

However, he noted that headline inflation stood at 11.1% in June, well above the SBP's medium-term target range of 5-7%, while risks from higher global commodity prices, tensions in the Middle East, rising food prices and potential fiscal slippages continue to justify a cautious monetary policy.

In contrast, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) criticised the decision, calling it contractionary and warning that high interest rates would undermine industrial recovery.

FPCCI Acting President Saquib Fayyaz Magoon said the business community had expected a rate cut to reduce the cost of doing business and support economic growth. 

Instead, he said, maintaining the benchmark rate was a setback for industries and exporters already struggling with high energy tariffs and financing costs.

"We cannot run industries or compete in global markets under such punishing financial burdens," he said, adding that a single-digit policy rate was essential to reduce production costs, improve the affordability of goods and services, and revive economic activity.

The Korangi Association of Trade and Industry (KATI) also expressed concern over the central bank's decision.

KATI President Muhammad Ikram Rajput said the elevated policy rate could further slow industrial recovery, investment and exports. He added that geopolitical tensions in the Middle East, rising global crude oil prices and broader external uncertainties continue to pose risks, while domestic challenges remain equally significant.

He said increasing production costs, higher electricity and gas tariffs, and the recent shift to daily petroleum price adjustments had placed additional pressure on manufacturers. Persistently high interest rates, he added, were discouraging new investment, delaying expansion plans and reducing the competitiveness of export-oriented industries.

Markaz-e-Anjuman Tajiraan Chairman Kashif Chaudhry also called for reducing the policy rate to single digits, saying it was necessary to revive business and commercial activity, attract investment and create employment opportunities.

He argued that high borrowing costs would further burden an already fragile economy facing challenges from the US-Iran conflict, volatile global oil prices, daily fuel price revisions, elevated freight charges and rising electricity and gas tariffs.