KARACHI: Industrialists and analysts have warned that any increase in the policy rate would further raise the cost of doing business, aggravating the already unsustainable costs of manufacturing and production.
The market is expecting an increase in the key policy rate in the next meeting to be held on Oct 26, 2026. Currently rate is stood at 11.5 percent. Reacting on this expected monetary tightening, Ateeq Ur Rehman Economic &Financial Analyst has warned that consumers would ultimately bear the brunt of higher interest rates as businesses pass on rising costs through higher prices of goods and commodities.
When the government is urging banks and financial institutions to accelerate lending to businesses, farmers, homebuyers and other underserved segments, an increase in the policy rate could discourage borrowing by raising financing costs and making loans less affordable, he said.
“The future of credit financing lies in promoting mortgage financing as a key component of financial inclusion. However, any increase in the policy rate would make mortgage financing more expensive, undermining efforts to provide affordable housing to low- and middle-income groups,” Atiq added.
Pakistan’s widening trade deficit could come under further pressure if the policy rate rises, as higher borrowing costs would constrain businesses, trade and industrial activity, Atiq warned.
He said exporters are already struggling to finance working capital, procure raw materials and meet operational expenses, while rising borrowing costs would further weaken their international competitiveness.
He added that shipping costs had surged nearly 200 percent, forcing exporters to absorb substantial additional expenses. A further increase in the policy rate would raise financing costs for sea freight payments made in local currency through borrowing, putting additional pressure on exporters, Atiq said.
SMEs, which account for a significant share of Pakistan’s economy, contribute around 45 percent to GDP needs easy access to finance for growth and sustainability. Any increase in the policy rate would raise borrowing costs, placing additional financial pressure on these businesses and potentially discouraging investment and economic activity.
In view of these concerns, Atiq urged the State Bank of Pakistan’s (SBP) Monetary Policy Committee to consider reducing the policy rate in its upcoming monetary policy decision to support SMEs, farmers and broader economic activity.
Copyright Business Recorder, 2026