Karachi Chamber of Commerce and Industry President Talat Mahmood says higher borrowing costs could discourage investment, increase production expenses and weaken Pakistan’s export competitiveness.
The Karachi Chamber of Commerce and Industry (KCCI) has criticised the State Bank of Pakistan’s (SBP) decision to increase the policy interest rate by 50 basis points to 12%, warning that the move could place additional pressure on businesses and slow economic growth.
KCCI President Talat Mahmood expressed serious reservations about the decision, arguing that higher interest rates would raise borrowing costs, discourage private-sector investment and make it more difficult for businesses to expand their operations. He urged policymakers to adopt an approach that addresses inflation while supporting industrial development and economic activity.
KCCI Questions Impact of Higher Interest Rates
According to Mahmood, the current inflationary pressures are largely linked to rising fuel and energy prices, geopolitical uncertainty, supply-chain disruptions and increases in the prices of essential commodities. He maintained that these factors are not primarily driven by excessive domestic demand.
In this situation, he argued, increasing the policy rate would impose additional financial pressure on businesses without directly resolving the underlying causes of inflation. Higher borrowing costs could further complicate the operating environment for industries and commercial enterprises across Pakistan.
Mahmood noted that businesses are already dealing with elevated electricity and gas tariffs, expensive raw materials, heavy taxation, rising transportation expenses and limited access to affordable financing.
He warned that raising the interest rate to 12% would make loans more expensive, potentially restricting businesses’ ability to maintain operations, increase production capacity and undertake new investment projects.
Higher Financing Costs May Affect Exports
The KCCI president also highlighted the limitations of monetary tightening in addressing supply-side inflation. He said higher interest rates cannot directly reduce international oil prices, lower domestic energy tariffs or resolve disruptions in supply chains.
Instead, increased financing expenses could add to production costs, potentially pushing up prices of locally manufactured goods. This could make Pakistani products less competitive in international markets at a time when the country needs to strengthen its export performance.
Mahmood stressed that Pakistan should prioritise investment, employment generation, industrial expansion and export-led economic growth. In his view, a higher policy rate could discourage businesses considering expansion and weaken confidence among potential investors.
KCCI Calls for a Growth-Oriented Policy
The chamber urged policymakers to pursue a balanced economic strategy that controls inflation without undermining business sustainability. Mahmood emphasised that monetary decisions should also consider their implications for industrial activity, investment and long-term economic prospects.
The KCCI maintained that supporting productive sectors and improving access to affordable financing would be important for strengthening Pakistan’s economic outlook. It called for policies that address inflationary pressures while enabling businesses to expand, create jobs and compete more effectively in global markets.
The concerns reflect the business community’s apprehension that higher interest rates could increase financial pressures on already struggling enterprises.