Business community express mix reaction over policy rate cut
KARACHI: Business community has expressed mix reaction over monetary policy announced by state bank of Pakistan on Monday.
Chairman of the Pakistan Vanaspati Manufacturers Association (PVMA), Sheikh Umer Rehan has welcomed the State Bank of Pakistan’s decision to reduce the policy rate by 100 basis points, bringing it down to 11%. However, he warned that while the move signals economic relief, it falls short of what is needed to stabilize and revive the country’s industrial sector. “This rate cut is a step in the right direction, but it is not enough,” said Sheikh Umer Rehan.
“Pakistan’s productive sector is under severe pressure due to rising costs, weakening consumer purchasing power, and limited access to affordable finance. The modest reduction in interest rates may restore some business confidence, but it will not be sufficient to fuel new investments, industrial expansion, or job creation.”
Rehan emphasized that global indicators including a declining trend in inflation, stable food commodity prices, and reduced import pressures warranted a bolder move by policymakers in Pakistan. “The State Bank should have acted more decisively and pushed the policy rate into single digits to ease constraints on industrial growth,” he added.
He particularly highlighted the challenges faced by the food manufacturing sector, including the ghee and cooking oil industries, which struggle with high financing costs. “These costs ultimately trickle down to the end consumers. A meaningful reduction in interest rates would not only lower production expenses but also create room to pass on benefits in the form of reduced prices,” he stated.
Rehan urged the central bank to chart a clear policy path toward lower interest rates to promote industrial expansion and economic recovery. He concluded by saying that true economic relief can only be realized through stronger, investment-friendly monetary reforms.
Salim Valimuhammad, Chairman of the Pakistan Chemicals & Dyes Merchants Association (PCDMA) has rejected the State Bank of Pakistan’s (SBP) recent 100 basis points reduction in the policy rate as inadequate, demanding an aggressive cut to single digits to revive business activity and stimulate economic growth. PCDMA Chairman argued that the current interest rate remains prohibitively high, stifling industrial expansion and commercial liquidity. “A nominal 1% reduction is not enough.
The central bank must slash rates to at least 9% to provide real relief to businesses,” he asserted. He warned that without a substantial rate cut, all government efforts to stabilize the economy would prove futile. “Excessive taxation and complex regulations have already burdened businesses with soaring compliance costs. Now, liquidity shortages are crippling operations. Only affordable credit can revive trade and industrial growth,” he emphasized.
The PCDMA chief highlighted that high borrowing costs are discouraging investment and exacerbating cash flow challenges for enterprises. “If the SBP truly wants to support the economy, it must prioritize single-digit interest rates immediately. Otherwise, businesses will remain stagnant, and economic recovery will stall,” he cautioned. Salim Valimuhammad urged monetary policymakers to align interest rates with regional benchmarks, stressing that cheaper financing is critical to sustaining Pakistan’s industrial competitiveness and easing inflationary pressures on businesses.
Ahmed Azeem Alvi, President of SITE Association of Industry, has expressed disappointment over the State Bank of Pakistan's (SBP) mere 100 basis points reduction in the policy rate, demanding the central bank bring the rate down to single digits to revive business confidence. He said, "A single-digit policy rate has been our long-standing demand, but it seems the business community is failing to make the government understand its importance. There's a psychological impact – if the policy rate enters single digits, it will significantly boost business confidence.
However, a one percent cut won't make any meaningful difference to economic improvement." He emphasized that high borrowing costs continue to stifle industrial growth, making it difficult for businesses to expand operations. "At current rates, access to affordable credit remains a major hurdle for industries," he added.
The SITE Association chief expressed hope that the next monetary policy would finally bring the interest rate to single digits, restoring business confidence. "Once businesses can secure loans at reasonable rates, they will expand operations, leading to positive ripple effects across the economy," Alvi stated. He urged policymakers to recognize the urgent need for a more aggressive rate cut, warning that without substantial relief, industrial growth and economic recovery would remain sluggish.
Former Chairman of the Rice Exporters Association of Pakistan (REAP) and Convener of the FPCCI Standing Committee on Energy, Rafiq Suleman, appreciated the State Bank of Pakistan’s decision to cut the interest rate by one percent. He stated that although the reduction did not meet expectations, it is still a positive move considering the current economic conditions.
The business community, he added, hopes that the interest rate will be further reduced in the coming days to bring it down to single digits. He said that a lower interest rate would improve business activity, particularly benefiting farmers. If farmers can obtain affordable financing from Islamic banks and hold onto their crops, they stand to gain more. In particular, rice, wheat, and maize farmers are likely to benefit significantly from the reduced interest rate. He further stated that the business community had expected a three percent cut, which would have brought the interest rate into single digits, especially since both the government and the State Bank Governor have acknowledged a notable decline in inflation.
However, contrary to those claims, only a modest reduction was made. There is a pressing need to bring the interest rate into single digits to encourage investment and ensure the availability of capital in the country. He emphasized that industrialists can only fully utilize their industrial and export potential when interest rates are determined based on economic realities. New domestic and foreign investments will follow, creating job opportunities as well.
Copyright Business Recorder, 2025