Pakistan’s Key Interest Rate Highest Among Regional Economies
The policy rate in Pakistan remains the highest in the region, including competing countries, as the State Bank of Pakistan (SBP) kept the policy rate unchanged at 11 percent for the second time, against the expectations of financial analysts and the business community.
The benchmark interest rate in India stands at 5.5 percent, Bangladesh at 10 percent, and Sri Lanka at 7.75 percent. Moreover, the key interest rate in Nepal stands at 6.5 percent, Bhutan at 6.3 percent, and the Maldives at 7 percent.
Like Pakistan, Bangladesh, and Sri Lanka have also engaged the International Monetary Fund (IMF) to achieve major economic goals; however, their benchmark rates are lower than Pakistan’s.
Reaction of the Business Community
The business community and exporters argued that not only is the policy rate high, but production costs are also elevated in Pakistan, which has affected the competitiveness of local companies in the global market.
The business community expressed resentment over the decision to keep the policy unchanged at 11 percent by the Monetary Policy Committee of the State Bank of Pakistan (SBP) in its latest announcement, terming it an anti-business stance for businessmen, industrialists, and entrepreneurs.
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They further said that the business and investment climate has been discouraging in Pakistan due to the poor decisions of the relevant authorities, which is reflected in the overall unsustainable and uncertain state of the economy for the past many years.
Central Chairman of the Pakistan Hosiery Manufacturers and Exporters Association (PHMA), Muhammad Babar Khan, said the status quo maintained at 11 percent will hurt the growth of exporters and manufacturers in different sectors. The policy rate remains higher than in the region, which makes it extremely challenging for exporters to further enhance their exports or compete with different countries such as Vietnam, Bangladesh, and India.
The business community has been facing multiple issues, including heavy taxes and a high cost of production, but the high policy and financing rates are tantamount to adding insult to injury.
President of the Federal B Area Association of Trade and Industries (FBATI), Shaikh Muhammad Tehseen, said the double-digit policy rate will not improve the investment climate for industries and businesses, and the economic cycle of growth will remain stagnant. Without the expansion of businesses and industries, the creation of jobs will not be possible for the growing young population of the country, and revenue generation through taxes will not improve, he pointed out.
The business community continued to demand a single-digit policy rate, declining utility costs, and a transparent and systematic tax collection mechanism. Yet, every demand of the businessmen has been neglected and rejected, he further added.
It is pertinent to mention here that the Monetary Policy Committee of the SBP maintained the policy rate unchanged at 11 percent in the last two policy announcements, even though the majority of experts believe there is room to relax the policy rate by 50 to 100 basis points in light of improvements in macroeconomic indicators.
The business community, on the other hand, demanded a drastic cut in the policy rate to a single-digit level, with plans to enhance their exports and local production through financing by commercial banks at comparatively affordable interest rates.
SBP’s Support
The SBP’s decision to hold the policy rate steady at 11 percent reflects a deliberate balancing act, anchoring inflation expectations while safeguarding the fragile economic recovery, said financial and banking analyst Ibrahim Amin. A premature rate cut could reignite inflationary pressures, compromise exchange rate stability, and erode the real interest rate buffer.
While headline CPI is low, underlying risks from energy price adjustments, external account pressures, and fiscal slippages remain significant.
A more structural approach, combining monetary prudence with targeted fiscal reforms, energy sector rationalization, and export competitiveness, may offer a more sustainable pathway to lower interest rates without jeopardizing macroeconomic stability.
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