Cut policy rate

2026-01-27 - 23:31

SBP’s decision to maintain its policy rate at 10.50% has drawn a sharp response from the business community. Business leaders, who were hoping for a reduction, have expressed frustration, calling the move not only disappointing but also counterproductive at a time when the nation’s industrial revival and export expansion should be top priorities. The concerns raised are far from baseless; they reflect the broader struggles of businesses grappling with high borrowing costs. Core inflation has stabilized at around 5% for several months now and major economic indicators suggest that the economy is poised for growth, provided there is a policy environment that encourages it. Holding the policy rate steady at a high level, especially when inflation is under control, seems unjustified and is likely to stifle the very industries needed to drive growth. Countries in the region have lower interest rates. In this context, Pakistan’s policy rate stands out as an anomaly that works against the country’s aspirations for industrial growth and export diversification. The business community’s call for a significant reduction in the policy rate is not an arbitrary demand but a well-considered plea for relief. As Atif Ikram Sheikh, President of the FPCCI, rightly pointed out, the high cost of borrowing is a primary reason behind industrial closures and the inability of Pakistani exporters to compete in the global marketplace. Exorbitant energy tariffs and the cost of finance are pushing businesses to the brink and without a drastic reduction in interest rates, the industrial sector will continue to struggle. Furthermore, the call for a lower policy rate is not just about reducing the cost of capital; it is about facilitating the broader economic agenda of creating jobs, especially for the burgeoning youth population. By stimulating industrial growth and boosting exports, businesses will have the incentive and capacity to expand operations, hire more workers and contribute to economic development. The business community’s concerns must be taken seriously if the conditions necessary for long-term growth are to be created. By reducing the policy rate, alongside cuts in tax rates and other reforms, the government and the central bank could help foster a more conducive environment for industrial expansion. In doing so, Pakistan could unlock its true economic potential, create much-needed jobs and foster the innovation necessary to compete in an increasingly globalized economy.