The SBP policy rate hike to 12% has drawn mixed reactions from Pakistan’s business community, with foreign investors welcoming the State Bank of Pakistan’s move to contain inflation while industry leaders warn that higher borrowing costs could weaken manufacturing, investment and export competitiveness.
The central bank raised its policy rate by 50 basis points on Monday. The decision received cautious support from the Overseas Investors Chamber of Commerce and Industry (OICCI), while several leading business associations criticised the move, arguing that expensive financing could place additional pressure on businesses already facing high energy costs, taxation and liquidity constraints.
M. Abdul Aleem, secretary general of OICCI, acknowledged the decision, saying it was necessary to contain inflationary pressures and safeguard macroeconomic stability amid risks from global energy prices.
However, he stressed that policymakers must also protect the recovery in economic activity and investment.
Large-scale manufacturing growth reached 1.9% in July and August of fiscal year 2026, while private-sector credit expanded 14.1% year-on-year. Aleem said maintaining this momentum was equally important as Pakistan sought to strengthen its economic recovery.
Foreign Investors Call for Wider Economic Reforms
Aleem said monetary tightening alone would not address inflationary pressures significantly influenced by international energy prices and domestic supply constraints.
He called for complementary measures, including targeted supply-side reforms, fiscal discipline, competitive energy tariffs, broader tax-base coverage and predictable taxation and regulatory policies.
The OICCI position reflects the importance of balancing inflation control with measures that support investment and economic activity. Foreign investors have welcomed the central bank’s efforts to maintain stability but emphasised the need for a business environment that encourages long-term investment.
FPCCI Warns Higher Interest Rates Could Hurt Industry
In contrast, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh criticised the increase, saying a 12% policy rate would raise borrowing costs for manufacturers struggling with high operating expenses, expensive utilities and limited liquidity.
Sheikh argued that Pakistan’s inflation was being driven largely by supply-side bottlenecks, energy costs and fiscal problems rather than excessive demand. He said restrictive monetary policy could further weaken domestic manufacturing instead of addressing the underlying causes of inflation.
He urged the government and the SBP to reconsider the policy framework and bring the interest rate into single digits to make financing more affordable for traders, small and medium-sized enterprises (SMEs) and large-scale manufacturers.
Sheikh also warned that high interest rates increase debt-servicing costs for the government and private borrowers, potentially deepening fiscal pressure and limiting industrial output. He called for interest rates to be aligned with regional benchmarks to improve Pakistan’s competitiveness.
Karachi Business Leaders Fear Investment Slowdown
Karachi’s business community also raised concerns about the impact of higher interest rates on investment, production and employment.
Karachi Chamber of Commerce and Industry (KCCI) President Talat Mahmood warned that the increase would raise the cost of doing business, discourage private-sector investment and undermine economic growth.
He said Pakistan needed to strengthen productive capacity, attract investment, generate employment and accelerate export-led growth. In his view, the rate increase could send a negative signal to businesses considering new projects or expanding existing operations.
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SITE Association of Industry President Abdul Hadi also opposed the decision, saying factories were operating well below capacity and struggling to remain financially viable.
He said the business community had repeatedly demanded a single-digit policy rate, but industrial concerns remained unresolved. According to Hadi, higher interest rates would make fresh financing more expensive while increasing repayment costs for businesses with existing loans.
He warned that continued pressure on manufacturers could force formal businesses to shut down or reduce operations, affecting new investment, production and industrial expansion.
KATI and Textile Exporters Highlight Competitiveness Risks
Korangi Association of Trade and Industry (KATI) President Sheikh Umer Rehan said the increase could undermine industrial recovery and broader business growth.
Rehan argued that Pakistan could also tackle inflation by reducing energy costs, addressing taxation issues, improving the business environment and implementing effective industrial policies.
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He emphasised the need for measures that strengthen productive activity instead of placing additional financial pressure on businesses.
Meanwhile, Pakistan Textile Exporters Association Chairman Rehan Naseem Bharara warned that the rate increase would raise working-capital costs, constrain investment and weaken exporters’ ability to compete in international markets.
He said textile manufacturers were already dealing with expensive energy and financing, leaving them vulnerable to further increases in operating costs.
Higher working-capital expenses can make it more costly for exporters to purchase raw materials, maintain production and fulfil orders. The association’s concerns underline the potential impact of monetary policy on an export sector that depends on competitive production costs and reliable access to financing.
Pakistan Faces Challenge of Balancing Stability and Growth
The differing responses to the SBP policy rate hike highlight the challenge facing Pakistan’s economic policymakers. While controlling inflation and protecting macroeconomic stability remain important, businesses are also demanding affordable financing, predictable taxation and lower energy costs.
Foreign investors have supported the central bank’s decision to address inflationary risks but stressed that monetary tightening should accompany broader economic reforms. Domestic industry leaders, meanwhile, have warned that higher borrowing costs could restrict investment, reduce production and weaken export competitiveness.
The policy debate now centres on how Pakistan can maintain economic stability without undermining the recovery of manufacturing and private-sector activity.
