Pakistan’s benchmark interest rate remains the highest among South Asian economies, as the State Bank of Pakistan (SBP) chose to keep the policy rate unchanged at 11 percent for the second consecutive time. This decision came despite growing pressure from the business community and financial analysts who were anticipating a moderate rate cut amid signs of macroeconomic stabilization.
Comparatively, other regional economies have adopted more accommodative monetary policies. India’s key policy rate stands at 5.5 percent, Bangladesh at 10 percent, Sri Lanka at 7.75 percent, Nepal at 6.5 percent, Bhutan at 6.3 percent, and the Maldives at 7 percent. Even nations like Bangladesh and Sri Lanka, which are also under International Monetary Fund (IMF) programs, maintain lower interest rates than Pakistan, raising questions about the SBP’s approach.
The SBP’s Monetary Policy Committee justified the rate hold by pointing to underlying risks such as energy price adjustments, external account volatility, and fiscal imbalances. According to financial analyst Ibrahim Amin, while headline inflation has shown signs of easing, the central bank’s cautious stance reflects concerns over renewed price pressures and exchange rate vulnerabilities. He warned that an early reduction in the rate could weaken the real interest rate buffer and destabilize inflation expectations.
However, the business community has expressed growing frustration, arguing that the high policy rate continues to squeeze industrial output and hinders Pakistan’s global competitiveness. Exporters and manufacturers, already grappling with elevated energy tariffs, heavy taxation, and supply chain inefficiencies, say the financial environment is now more hostile than ever.
Muhammad Babar Khan, Central Chairman of the Pakistan Hosiery Manufacturers and Exporters Association (PHMA), warned that maintaining the 11 percent policy rate will hamper growth across key industrial segments. He emphasized that Pakistan’s exporters are struggling to remain competitive with counterparts in India, Bangladesh, and Vietnam, where interest rates are significantly lower.
Shaikh Muhammad Tehseen, President of the Federal B Area Association of Trade and Industries (FBATI), echoed these concerns. He criticized the double-digit policy rate as detrimental to business expansion and employment generation. Without affordable financing, Tehseen said, local industries cannot scale operations, nor can they contribute meaningfully to national exports or tax revenues.
Despite repeated calls from business leaders for a single-digit interest rate, reduced utility costs, and streamlined taxation, stakeholders claim that their demands have largely been sidelined. They argue that the prevailing economic environment is characterized by unpredictability and inaction, which discourages both local investment and foreign capital inflows.
While the SBP continues to prioritize monetary prudence, experts suggest a more integrated strategy may be necessary. Combining a measured monetary approach with structural fiscal reforms, targeted energy sector rationalization, and tangible incentives for exporters could create the space needed for sustainable rate cuts in the near future.
As the second half of FY26 unfolds, all eyes remain on the SBP’s next policy decision. The pressure to support growth while safeguarding stability is intensifying, and the coming quarters may well test the central bank’s balancing act between inflation control and economic revival.