KCCI Criticizes SBP’s Decision to Maintain High Interest Rate

KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has voiced its disappointment over the State Bank of Pakistan’s (SBP) decision to keep the policy rate steady at 11 percent. KCCI President Muhammad Jawed Bilwani described the move as overly cautious and detrimental, especially given the current economic conditions marked by easing inflation and the deteriorating competitiveness of Pakistan’s industrial sector.

In a statement released Monday, Bilwani remarked that the business community had anticipated a reduction in interest rates to single digits. Such a move was seen as crucial to stimulating economic activity, lowering business costs, and offering relief to struggling industries. By opting to maintain the current rate, the SBP has ignored market indicators and stifled business confidence at a critical time for the economy.

Bilwani highlighted that inflation has reached a low point, with projections from independent analysts estimating it will remain between 6 to 7 percent for fiscal year 2026. The International Monetary Fund (IMF) and government forecasts stand at 7.5 percent. Despite these figures, the decision to keep the policy rate at 11 percent seems unjustifiable, especially when May’s inflation rate of 3.5 percent is relatively low, providing room for a rate cut that was not pursued.

The KCCI President stressed that the high interest rates have hampered Pakistan’s industrial sector in competing on a regional and global scale. He noted that exporters are struggling in international markets while domestic manufacturers contend with increasing competition from cheaper imports. A reduction in the interest rate would have offered much-needed support for industrial recovery and job creation.

Acknowledging global uncertainties, such as the Iran-Israel conflict and rising oil prices, Bilwani argued against the SBP’s cautious stance, which he claims disproportionately affects local businesses. He pointed out that while external risks are significant, penalizing domestic producers and investors is counterproductive. Given the current fiscal tightening measures and a contractionary federal budget, there was room for monetary support that was not utilized.

Bilwani urged the central bank to adopt a more balanced monetary policy that supports growth. He stated that in times of economic difficulty, monetary policy should encourage rather than deter growth. He appealed to the SBP to consider the needs of the productive sectors, emphasizing that Pakistan cannot afford to suppress its growth potential.