KARACHI: Karachi Chamber of Commerce & Industry (KCCI) President Talat Mahmood has strongly opposed the State Bank of Pakistan’s decision to increase the policy interest rate by 50 basis points, from 11.5 percent to 12 percent, warning that the move will further increase the cost of doing business, discourage private-sector investment and undermine efforts to accelerate economic growth.
Expressing serious concern over the decision, Mahmood stated that the prevailing inflationary pressures were largely attributable to rising energy and fuel prices, geopolitical uncertainty, supply-chain disruptions and increases in essential commodity prices rather than excessive domestic demand.
Under these circumstances, he said, increasing interest rates would impose an additional burden on businesses without directly addressing the underlying causes of inflation.
“The business community is deeply concerned over this decision, as Pakistan’s industrial and commercial sectors are already struggling with high electricity and gas tariffs, expensive raw materials, heavy taxation, rising transportation costs and limited access to affordable financing.
“Raising the policy rate to 12 percent will further increase borrowing costs, making it more difficult for businesses to sustain operations, expand production and undertake new investments,” he said.
He emphasised that higher interest rates could not bring down international oil prices, reduce energy tariffs or resolve supply-chain disruptions.
Instead, the increased cost of financing would add to the overall cost of production, potentially resulting in higher prices for domestically manufactured goods and further weakening the competitiveness of Pakistani products in international markets.
“At a time when Pakistan needs to strengthen its productive capacity, attract investment, generate employment and accelerate export-led growth, increasing the policy rate sends the wrong signal to businesses planning to invest and expand.
“We strongly urge the policymakers to adopt a balanced and growth-oriented approach that controls inflation without compromising industrial development, business sustainability and the country’s long-term economic prospects”, he added.
However, President of the North Karachi Association of Trade and Industry (NKATI), Faisal Moez Khan, has termed the State Bank of Pakistan’s decision to increase the policy rate by 50 basis points unacceptable to the business community.
He said the decision would deal a severe blow to ongoing efforts to achieve economic stability, slow industrial growth, and further weaken the export competitiveness of Pakistani products in international markets. He added that raising the policy rate to the high level of 12 percent would further aggravate the challenges faced by the industrial sector.
Khan stated that a 12 percent policy rate would undermine the competitiveness of Pakistan’s economy compared with regional countries. He said there was no need to increase interest rates under the prevailing circumstances. Instead, the business community urgently needed access to low-cost financing and economic incentives to boost domestic production, sustain business activities, and create new employment opportunities.
He maintained that rather than effectively contributing to price stability, the increase in interest rates was placing an additional burden on manufacturing industries. This could force formal businesses to shut down or scale back their operations.
Faisal Moez Khan further said that high interest rates would make borrowing more expensive for businesses, negatively affecting new investment, industrial expansion, and productive activities.
Meanwhile, Korangi Association of Trade and Industry (KATI) President Sheikh Umer Rehan has expressed disappointment over the decision to raise the policy rate, warning that the 50-basis-point increase could undermine industrial activity, business growth and economic recovery while further raising operating costs for industries and businesses.
Sheikh Umer Rehan said the SBP’s decision appeared to have been made in view of inflationary pressures, the current account position and external financial challenges.
However, he cautioned that the move could intensify difficulties for the industrial sector under the prevailing economic conditions.
He said industries urgently needed affordable financing to expand business activities, increase production capacity and sustain investment.
The interest rate hike, however, would make borrowing more expensive for businesses, potentially discouraging investment and slowing industrial expansion.
The KATI president warned that higher interest rates would increase production costs, pushing up the prices of locally manufactured goods and weakening the competitiveness of Pakistani exports in international markets.
He said Pakistan’s economy was already facing uncertainty and economic pressures arising from international tensions and the Iran-US conflict. Under these circumstances, the government should provide relief to industries and restore business confidence rather than increase financing costs and slow industrial activity.
Sheikh Umer Rehan further observed that higher interest rates could constrain investment, discourage new industrial projects and make access to financing more difficult for small and medium-sized enterprises (SMEs).
He said the industrial sector was already under considerable pressure due to high operating costs and multiple economic challenges. Any further increase in interest rates could adversely affect industrial development, employment generation and export growth.
The KATI president stressed that raising interest rates was not the only way to control inflation.
He said economic pressures could also be addressed through reductions in energy costs, improvements in the taxation system, a more business-friendly environment and effective industrial policies.
He pointed out that high energy prices, the tax burden and rising import costs were among the major factors contributing to inflation.
International tensions were also putting additional pressure on energy and fuel prices.
In his view, effective administrative measures and realistic economic policies would be more appropriate for addressing these underlying cost pressures than relying exclusively on monetary policy tools.
Sheikh Umer Rehan urged the SBP to give greater consideration to the needs of the industrial sector, business operating costs and the requirements of economic recovery in its future monetary policy decisions.
He also called on the central bank to assess the scope for a gradual reduction in interest rates, emphasising that a supportive financing environment was essential to encourage investment, boost exports, generate employment and strengthen the economy on a sustainable basis.
Copyright Business Recorder, 2026