KCCI warns policy rate hike to 12% will raise business costs, deter investment

The Karachi Chamber of Commerce and Industry (KCCI) has opposed the State Bank of Pakistan’s decision to raise the policy rate by 50 basis points to 12%.

KCCI President Talat Mahmood warned the increase will push up business costs, discourage private investment and hinder economic growth.

Why does KCCI oppose the policy rate hike?

KCCI says the hike will raise borrowing costs for businesses, making it harder to sustain operations, expand production and invest in new projects. It argues that inflation is driven by energy and fuel prices, geopolitical uncertainty and supply-chain disruptions rather than excessive domestic demand, so higher interest rates will not address its main causes.

Mahmood said inflationary pressures were also linked to rising prices of essential commodities. Raising interest rates under these conditions, he said, would burden businesses without directly addressing the main drivers of inflation.

“The business community is deeply concerned over this decision, as Pakistan’s industrial and commercial sectors are already struggling with high electricity and gas tariffs, expensive raw materials, heavy taxation, rising transportation costs and limited access to affordable financing,” Mahmood said.

How could a 12% policy rate affect businesses?

Mahmood said higher interest rates could not reduce international oil prices, lower energy tariffs or resolve supply-chain disruptions. Instead, more expensive financing could raise production costs, potentially pushing up the prices of locally manufactured goods and weakening their competitiveness in international markets.

He said Pakistan needs to expand productive capacity, attract investment, create jobs and boost exports. In that context, he argued, the rate increase could discourage businesses from investing and expanding.

What does KCCI want policymakers to do?

Mahmood urged policymakers to adopt a balanced, growth-oriented approach that controls inflation without undermining industrial development, business sustainability and the country’s long-term economic prospects.