KARACHI, Pakistan — Pakistan’s trade and industry leaders warned that the State Bank of Pakistan’s 100-basis-point increase in the benchmark policy rate to 11.5% would raise borrowing costs, weaken exports and slow a fragile industrial recovery, April 28, 2026. They said the hike comes as exporters face falling shipments, high energy prices and tighter working capital, while the central bank says firmer policy is needed to contain inflation risks from the Middle East conflict.
The State Bank’s Monetary Policy Committee said in its April 27 monetary policy statement that the policy rate would rise to 11.5% from April 28. The committee cited higher global energy prices, freight charges, insurance premiums and supply-chain uncertainty, saying inflation is likely to remain above its 5%-7% target range in the next few quarters.
Why the SBP policy rate hike worries exporters
Exporters and manufacturers said the decision has landed at a difficult moment for industry. According to the Pakistan Bureau of Statistics’ March trade release, exports fell 7.99% in dollar terms during July-March FY26 to $22.742 billion, while imports rose 6.89% to $50.655 billion. The cumulative trade deficit widened to $27.913 billion.
Business leaders told Dawn that the higher interest rate would hit exports and economic growth, arguing that Pakistan’s industry had been seeking single-digit borrowing costs to compete with regional peers. Federation of Pakistan Chambers of Commerce and Industry President Atif Ikram Sheikh said the higher-rate environment contradicts the government’s goals of export growth, job creation and industrial revival.
Karachi Chamber of Commerce and Industry President Muhammad Rehan Hanif said there had been “ample room” for the central bank to keep the rate unchanged. Other industry representatives warned that higher finance costs would squeeze small and medium-sized enterprises, delay expansion plans and make Pakistani goods less competitive abroad.
The criticism was echoed by several trade bodies, with Business Recorder reporting that business groups rejected the rate increase and warned it could hurt economic activity and lead to factory closures. FPCCI Senior Vice President Saquib Fayyaz Magoon said the decision would make affordable financing harder for SMEs, while Korangi Association of Trade and Industry President Muhammad Ikram Rajput argued that inflation cannot be controlled through interest rates alone.
Central bank prioritizes inflation control
The SBP framed the move as a defensive step to preserve macroeconomic stability. It said headline inflation rose to 7.3% in March, while core inflation increased to 7.8%. The bank also warned that the current supply shock could push inflation into double digits in coming months before easing later.
The central bank also pointed to better economic conditions than in past shocks. Real GDP grew 3.8% in the first half of FY26, large-scale manufacturing grew 5.9% during July-February, and SBP foreign exchange reserves stood at about $15.8 billion as of April 24. The bank said reserves are expected to rise above $18 billion by June.
The decision also comes under the shadow of Pakistan’s IMF program. The IMF announced a staff-level agreement with Pakistan on March 27 that could unlock about $1.2 billion, subject to board approval, while emphasizing continued fiscal and monetary discipline.
Older SBP policy rate battles show a continuing divide
The clash between stabilization and industrial growth is not new. In June 2023, Reuters reported that Pakistan’s central bank raised the benchmark rate to 22% at an emergency meeting as the country tried to revive an IMF program.
As inflation later eased, business groups repeatedly pressed the central bank for faster cuts. Business Recorder reported in December 2024 that leading business figures urged a 500-basis-point reduction to stimulate investment and industrial activity.
The same demand resurfaced after the SBP cut the rate to 10.5% in December 2025. Dawn reported at the time that industry leaders called the move too small to revive production and exports. A month later, when the central bank held the rate at 10.5%, business leaders again criticized the decision and said double-digit rates were still holding back industrial recovery.
Export hopes now depend on policy balance
Industry leaders say the latest rate hike could make export recovery harder just as shipments are already under pressure. They argue that lower energy costs, tax reform, easier working-capital access and a more predictable policy environment are needed alongside monetary stability.
The SBP, however, appears focused on preventing a renewed inflation spiral from external shocks. That leaves exporters facing a familiar policy dilemma: borrowing costs may rise to protect macroeconomic stability, but the same medicine could slow the investment and production needed to rebuild Pakistan’s export base.
