KCCI Condemns State Bank’s Token Interest Rate Cut as Ineffectual

President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani, while expressing strong disappointment over the State Bank of Pakistan’s (SBP) decision to implement a nominal reduction of just 1 percent in the policy interest rate, criticized the move as insufficient to address the prevailing economic challenges and unlock the country’s growth potential.

The decision, according to President Bilwani, reflects a lack of urgency in addressing the critical financial and economic
issues faced by businesses, particularly small and medium enterprises, across the country. “Despite Prime Minister’s
assurances of bringing the interest rate down, the SBP has kept it to 12 percent, which the business community is
unable to understand”, he added while referring to KCCI’s discussions with the Prime Minister on this particular issue.

President KCCI pointed out that businesses are operating under severe strain due to an unprecedented increase in
input costs, including energy tariffs, fuel prices, and raw material costs, coupled with a volatile exchange rate. In this
context, the high interest rates have exacerbated the financial burden, making it nearly impossible for businesses to
access affordable credit for working capital and expansion, he said, adding that the nominal cut in the policy rate fails
to provide the relief that the business community has been advocating for and falls short of creating a conducive
environment for economic recovery.

He emphasized that the recent decline in inflationary pressures provided ample room for the State Bank to implement
a more aggressive cut in interest rates. Notably, Pakistan’s annual consumer price inflation rate dropped to 4.1 percent
in December 2024, the lowest level in more than six years. This significant decrease from the multi-decade high of
around 40 percent in May 2023 is attributed to a stable currency, lower global commodity prices, and improved supply
chains.

He was of the view that a meaningful reduction in the policy rate would have sent a strong signal to investors, both
domestic and international, that Pakistan is committed to fostering a business-friendly environment. Instead, the
marginal adjustment appears to be a cautious and overly conservative approach that does little to address the
underlying economic stagnation.

President KCCI further noted that Pakistan’s policy rate remains significantly higher than its regional counterparts,
placing local businesses at a distinct disadvantage in terms of cost competitiveness. In India, for example, the policy
rate stands at 6.50 percent, as they have adopted a proactive monetary policy to stimulate industrial growth and attract
investment, while Pakistan’s restrictive monetary policy continues to hinder economic progress and exacerbate
unemployment.

He also highlighted that high interest rates discourage investment in productive sectors and push investors towards
speculative markets such as real estate and foreign exchange, further straining the economy. The lack of affordable
credit has severely impacted industries, especially export-oriented sectors, at a time when enhancing exports is critical
for addressing Pakistan’s balance of payments crisis. “A substantial reduction in interest rates would have provided
relief to businesses, encouraged investment, and helped stimulate consumer demand.”

President KCCI called for a more holistic and pragmatic approach to monetary policy, one that aligns not only with the
region but also with the government’s broader objectives of economic growth, export enhancement, and employment
generation.