The Economic Policy and Business Development (EPBD) think tank has expressed deep concern over persistently high interest rates in Pakistan, warning that the State Bank’s tight monetary stance is stifling private sector growth and forcing the government to pay an enormous cost of borrowing.
In its latest assessment, EPBD noted that despite improving inflation trends, the State Bank of Pakistan (SBP) has reduced the policy rate by only one percentage point since January 2025, keeping it at 11 percent. The annual average real interest rate, the report said, has hovered around 8.5 percent — one of the highest in the region.
The think tank said that as a result of high interest rates, the cost of doing business has surged, while the government has had to make additional interest payments worth Rs3 trillion to banks. “These policies are suffocating private investment, compelling the government to impose heavy taxes to meet fiscal needs,” EPBD stated.
It further warned that the monetary policy is contributing to an economic slowdown, mounting public debt, and a decline in growth prospects.
“Inflation has recently risen to 6.2 percent, yet the policy rate remains stuck at 11 percent. Earlier, when inflation ranged between 0.3 percent and 5 percent, the policy rate was still maintained at 11 percent,” the report added, pointing out a “complete disconnect” between inflation and interest rate trends.
EPBD urged the central bank to align monetary policy with current economic realities, cautioning that continued rigidity in the interest rate framework could deepen Pakistan’s growth challenges and increase the cost of economic recovery.
