Will SBP rate cut ‘do little to ease pressure on businesses’?

Despite a sustained moderation in inflation and clear signs of economic slack, experts say Pakistan’s monetary policy remains overly restrictive, constraining the recovery of private-sector activity.

Some analysts and industrialists have raised concerns about the State Bank of Pakistan’s monetary policy decision to cut the key interest rate by 50 basis points to 10.5%.

Policy Research & Advisory Council (PRAC) Head of Research Dr Usama Ehsan Khan told Business Recorder the Monetary Policy Committee’s (MPC) decision to cut the policy rate by 50 basis points to 10.5%, effective December 16, 2025, is a step in the right direction. However, he said it falls well short of what prevailing macroeconomic conditions warrant and what the economy urgently requires.

He mentioned headline inflation has remained in single digits since August 2024, indicating sustained easing of price pressures. Despite this, the policy rate stayed in double digits through four consecutive MPC meetings, and the latest modest adjustment does little to address the imbalance. This prolonged delay in easing monetary conditions has imposed substantial costs on the real economy.

A regional comparison further highlights the issue, he said, explaining that Pakistan’s real interest rate stands at around 4.4%, significantly higher than peer economies. China’s real rate is approximately 2.8%, Bangladesh’s is 1.8%, and Vietnam’s is just 1.2%.

Criticising the SBP’s decision, Khan said excessively tight monetary conditions continue to suppress credit growth, discourage capital formation, and elevate financing costs for firms already grappling with low demand and thin margins. In this context, a 50bps cut offers limited relief.

“A more decisive reduction—of at least 200 basis points—would have been more consistent with the current trend in inflation and better aligned with regional monetary settings, while still preserving a positive real rate to safeguard price stability,” he said.

Meanwhile SITE Association of Industry (SAI) President Ahmed Azeem Alvi has expressed disappointment over the SBP’s decision to reduce the policy rate by only 50 basis points, terming the move insufficient to provide any meaningful relief to the struggling industrial sector.

Alvi said that given the severity of the current economic challenges, such a marginal cut would do little to ease the pressure on businesses. He stressed that the government must adopt a clear and coherent strategy if it intends to keep domestic industries afloat.

Alvi stressed that local industries were already under immense strain, while imports had come to a standstill. At the same time, he added, persistently high interest rates had trapped both businesses and the public in a cycle of inflation and unemployment. “

Business Recorder also spoke to Karachi Chamber of Commerce & Industry (KCCI) President Muhammad Rehan Hanif, who expressed deep disappointment over the State Bank of Pakistan’s decision, stating that such a token adjustment falls far short of what is urgently required to revive Pakistan’s fragile economy and restore business confidence.

Hanif remarked that the marginal cut neither reflects prevailing economic realities nor offers meaningful relief to businesses that are already struggling under an exceptionally high cost of doing business.

He emphasized that despite a visible decline in inflation, borrowing costs in Pakistan remain among the highest in the region, severely undermining industrial growth, exports, and employment generation.

Head of Research at JS Global Waqas Ghani said with economic activity still dull, the SBP appears to be responding to the need for incremental growth support.

Importantly, the quantum of the cut is modest, suggesting a cautious approach, According to him, the SBP is signaling flexibility while remaining mindful of inflation risks and external account vulnerabilities.

He also believes the move is positive for equities and may result in optimism in the stock market.