Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput today voiced significant disappointment over the State Bank of Pakistan’s Monetary Policy Committee”s decision to increase the policy rate by 100 basis points, from 10.5% to 11.5%, asserting that this move will adversely impact industrial activity and escalate operational costs for businesses.
Mr. Rajput acknowledged that the 1% policy rate hike likely aimed at addressing inflationary pressure, the current account deficit, and external financial challenges. However, he contended that, given the prevailing circumstances, it would merely compound the difficulties faced by the industrial sector.
He highlighted that inflation had been on a downward trajectory, nearing the 7% mark, yet the elevated interest rate would make borrowing considerably more expensive for enterprises. This, he elaborated, would inevitably push up production expenses, directly influencing product pricing and eroding export competitiveness.
The KATI president pointed out that the Pakistani economy is already grappling with recovery pressures stemming from international tensions, including the Iran-US conflict. He stressed the urgent need for industry to access more affordable financing, noting that higher interest rates typically deter investment, discourage new industrial ventures, and limit access to capital for small and medium-sized enterprises (SMEs).
Furthermore, Mr. Rajput observed that numerous economies globally are implementing softer monetary policies to foster growth, while Pakistan”s elevated rates could potentially impede industrial expansion.
He strongly emphasised that inflation cannot be managed through interest rate increases alone. Instead, he advocated for supply-side reforms, reduced energy costs, and an improved overall business environment as crucial complementary measures. He attributed current inflationary pressures to high energy prices, taxes, and import costs, all exacerbated by geopolitical situations, suggesting these issues would be better addressed via administrative and policy interventions rather than monetary tools.
Mr. Rajput concluded by urging the State Bank to consider the specific needs of industry in its future monetary policy deliberations and to reduce the interest rate. This, he argued, would stimulate investment, boost exports, create employment opportunities, and steer the economy towards sustainable stability.