KARACHI: The decision of State Bank of Pakistan (SBP) to lower the policy rate by 50 basis points to 10.50pc drew mixed reactions on Monday, with a foreign investors’ body welcoming it while the country’s wider business community criticised it as marginal and ineffective for boosting local production and exports.

The Overseas Investors Cham­ber of Commerce and Industry (OICCI) viewed the rate cut as a prudent measure.

“The State Bank has taken a cautious and measured step to ease financing conditions,” OCCI’s Secretary General and Chief Executive Abdul Aleem said.

Mr Aleem said the unexpected reduction is positive and will help stimulate business activities by lowering borrowing costs while preserving overall economic stability.

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He added that the chamber notes that a gradual approach “allows businesses to plan investment decisions with greater confidence and helps ensure that the impact of ease remains aligned with sustainable economic growth objectives”.

However, local business leaders expr­essed immediate and deep disappointment, arguing the minor adjustment fails to address the severe challenges they face.

“Such a token adjustment falls far short of what is urgently required to revive Pakistan’s fragile economy and restore business confidence,” Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Rehan Hanif said.

Mr Hanif said the marginal cut neither reflects prevailing economic realities nor offers meaningful relief to businesses struggling under an exceptionally high cost of doing business. Despite a visible decline in inflation, borrowing costs in Pakistan remain among the highest in the region, he said.

“Regional economies such as China, India, Bangladesh, Viet­nam, Indonesia and Sri Lanka maintain single-digit interest rates, enabling their industries to access affordable financing, expand capacity, and remain competitive in global markets, while the situation in Pakistan is opposite,” Mr Hanif said.

Mr Hanif noted when the cost of financing remains prohibitively high, businesses defer expansion plans, shut down marginal units, and reduce employment, ultimately leading to lower economic output and reduced government revenues.

Echoing that sentiment, leaders from other major trade bodies said the small reduction would fail to encourage new investment or create jobs.

“The 50 basis point cut would not resolve the industries’ problems and fail to boost exports under the challenging business environment,” Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Senior Vice President Saquib Fayyaz Magoon said.

“The interest rate should be brought down to a single digit to at least come at par with regional peers.”

Industries are currently burdened with exorbitant energy tariffs, high fuel prices, excessive taxation and a volatile exchange rate. Business leaders argue that maintaining a high interest rate regime suffocates productive economic activity.

Ahmed Azeem Alvi, president of the SITE Association of Industry, termed the move insufficient. “People are losing jobs every day.

The government must bring the policy rate down to single digits so that the economy can breathe and employment opportunities can grow,” he said.

Alvi added that bureaucratic hurdles and IMF conditions were preventing effective decision making.

Businessman Diwan Fakhr­uddin outrightly rejected the reduction, noting that high interest rates have made bank financing difficult to obtain, forcing manufacturing units to operate below capacity and leading to rising unemployment.

He stressed that small and medium enterprises have been particularly hard hit.

“As a result, not only has the establishment of new industries come to a halt, but existing manufacturing units are also being forced to operate below capacity,” Mr Fakhruddin said.

He urged the SBP to take into account the ground realities and announce an immediate, substantial, and effective reduction in interest rates.

Pakistan Chemicals and Dyes Merchants Association Chai­rman Saleem Valimuha­mmad said if the interest rate remains at this level, it will be impossible for businesses to grow, and the overall economic growth will continue to slow down. Unless the interest rate is brought down to single digits, there will be little hope for the improvement of the economy.

Published in Dawn, December 16th, 2025