The PTEA SBP rate hike reaction came on October 26, when Pakistan’s textile exporters warned that the State Bank of Pakistan’s decision to raise its policy rate to 12 percent will make it harder for them to compete in world markets. The Pakistan Textile Exporters Association said higher borrowing costs will add to pressure from expensive energy and raw materials.
The State Bank raised the rate by 50 basis points to 12 percent. Feature Pakistan reported that the bank lifted the rate amid rising inflation risks, while traders watched the decision closely on the stock market, as covered in the market open report.
PTEA SBP rate hike reaction in detail
PTEA Chairman Rehan Naseem Bharara said the increase would make working capital more expensive, discourage investment and weaken exporters’ ability to compete abroad. He added that the true cost of borrowing for Pakistani businesses rises further once banks add their spreads on top of the policy rate.
PTEA Vice Chairman Haris Yousaf said exporters were already struggling to finance daily operations, buy raw materials and cover other expenses. Higher interest rates would make those challenges worse and could undermine the government’s export-led growth plans, he warned.
Yousaf also warned that a prolonged decline in exports could slow economic growth, reduce funds available for development spending and weaken Pakistan’s ability to meet its external debt obligations. Shipping costs have also risen by nearly 200 percent, he added.
The cost gap with rival exporters
Bharara set out the gap in borrowing costs between Pakistan and its main textile rivals. Industrial term loans in India carry annual rates of around 9.25 to 9.6 percent, while machinery and small and medium-sized enterprise loans range from 8.5 to 12.5 percent. In Vietnam, small and medium firms in supporting industries can borrow at 8 to 10 percent.
China offers cheaper financing still, with the average lending rate for general business loans at 3.04 percent. Loans for technological upgrades carry rates of around 2.7 percent, which can fall to an effective 0.85 percent after government interest subsidies, Bharara said.
| Country | Indicative borrowing cost cited by PTEA |
|---|---|
| Pakistan | Policy rate now 12 percent, plus bank spreads |
| India | 9.25 to 9.6 percent for industrial term loans |
| Vietnam | 8 to 10 percent for small firms in supporting industries |
| China | 3.04 percent average for general business loans |
Bharara argued that Pakistani exporters are being forced to compete with businesses in China and Vietnam that enjoy far cheaper capital. He called for coordinated steps to reduce production costs and support export-led growth.
Why the State Bank raised the rate
The bank judged inflation risks had intensified, with Middle East tensions pushing up oil prices. The monetary policy committee also noted Pakistan’s staff-level agreement with the International Monetary Fund, reached earlier in October, while stressing that prudent fiscal management remains essential to preserve stability.
Exporters counter that Pakistan’s inflation is driven mainly by supply costs and energy prices, not excess demand, so dear credit punishes manufacturers without fixing the cause.
Yousaf said small and medium firms, which contribute around 45 percent of gross domestic product, need easier financing to expand and stay sustainable.
A warning the industry has made before
The warning is not new. Feature Pakistan reported on October 12 that PTEA warned of a steep fall in textile exports in the October to December quarter, citing weak demand in Western markets, freight costs up by 1.5 to 2.5 times, and an export finance rate of 4.5 percent that had not been put into practice.
Exporters say they flagged the danger weeks ago, and the rate rise has now made it worse. The association called for an export-focused framework treating the textile value chain as one connected industry.
Exporters will judge the policy by orders and shipments in the months ahead, not by a single day’s trading. The stock market gained 663 points on October 26. If borrowing stays dear while energy and freight costs stay high, they warn, Pakistan risks losing export share to rivals that finance their factories far more cheaply.
What did the State Bank decide?
The State Bank raised its policy rate by 50 basis points to 12 percent on October 26.
Why do textile exporters object?
Exporters say dearer loans raise working capital costs, discourage investment and leave them unable to match rivals in India, Vietnam and China, where borrowing is far cheaper.
