Karachi: The State Bank of Pakistan's (SBP) decision to raise its benchmark interest rate by 50 basis points to 12 per cent has split the business community, with foreign investors supporting the move to curb inflation and domestic industry representatives warning that higher borrowing costs could slow economic activity.
The Monetary Policy Committee (MPC) announced the increase on Monday, and the revised rate takes effect Tuesday.
Nine of the committee's ten members voted for the increase, while one supported a larger adjustment.
The central bank said the ongoing conflict in the Middle East, higher international energy prices, and disruptions to domestic wheat supplies worsened Pakistan's inflation outlook.
It maintained that higher interest rates were necessary to contain inflation expectations and prevent rising food and energy costs from spreading across the wider economy.
Foreign investors support cautious tightening
The Overseas Investors Chamber of Commerce and Industry (OICCI) welcomed the decision, calling it a measured response to inflationary pressures and uncertainty in international energy markets.
OICCI Secretary General M. Abdul Aleem said the increase reflected the need to safeguard macroeconomic stability while responding to risks stemming from geopolitical tensions.
He also emphasised the need to sustain investment and economic activity as Pakistan's industrial sector begins to recover.
The chamber's position reflects concerns that persistent inflation and economic instability could undermine business confidence, even as higher interest rates raise financing costs.
Domestic industry warns of slower growth
However, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) criticised the increase.
FPCCI President Atif Ikram Sheikh expressed disappointment at the decision, arguing that the 12 per cent policy rate put Pakistani businesses at a competitive disadvantage.
He warned that higher borrowing costs could discourage industrial expansion, constrain private-sector investment and undermine the competitiveness of Pakistani exports.
According to the FPCCI, businesses require more affordable financing to expand production, sustain operations and create employment.
Domestic industry representatives argued that higher interest rates may offer limited relief when supply disruptions and higher international commodity prices, rather than excessive consumer demand, are driving inflation.
For businesses, the immediate concern is credit affordability. For the central bank, the priority is to prevent temporary price shocks from becoming persistent inflation.
The latest decision therefore places the competing demands of price stability and economic recovery at the centre of Pakistan's monetary policy debate.
