Rationale to maintain interest rate neither convincing nor economically sound: Bilwani

KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani expressed disappointment over the State Bank of Pakistan’s (SBP) decision to maintain the policy interest rate at an elevated 11 percent, contrary to the widespread expectation of a cut that could have brought the rate down to a single digit.
In a statement issued, President KCCI said that at a time when Pakistan’s core inflation has significantly receded, there remains no sound economic justification for keeping borrowing costs prohibitively high. “The State Bank has cited the uptick in inflation during May and June, along with concerns of a moderate rise in the coming months due to persistent pressures on energy prices, as reasons for maintaining the policy rate. Yet, this rationale is neither convincing nor economically sound”, he added.
Bilwani opined that even with inflation at its current level or marginally higher, there remains sufficient room to reduce the interest rate to a single digit, as many regional economies have done in similar or even more complex economic environments. “By missing this critical opportunity to lower rates, the State Bank has not only dampened hopes for economic revival but also imposed a continued and unnecessary burden on an already strained private sector”, he said, adding that the decision to maintain interest rate was not only detrimental to domestic businesses, particularly SMEs and manufacturers, but also risks further stifling economic recovery, employment generation, and industrial revival.
He pointed out that across the region and in comparable economies, monetary policy easing is actively being pursued to support growth. For instance, India’s policy rate stands at 6.5 percent, Bangladesh around 8.5 percent, Indonesia at 6.25 percent, while Vietnam has brought its rate down to below 5 percent, all significantly lower than Pakistan’s.
He said that high interest rates have choked working capital availability, increased default risks, and escalated the cost of doing business, making Pakistani exports uncompetitive globally. “The business community had hoped for bold, forward-looking monetary easing to complement fiscal consolidation efforts and re-ignite economic activity. The SBP’s inaction instead risks prolonging stagflation, undermining job creation, and pushing more enterprises towards closure.”