SBP Likely to Hold Tight Monetary Policy as Inflation Hits 10.3 Per Cent
The State Bank of Pakistan looks set to keep SBP monetary policy tight, with analysts saying the central bank will miss its FY27 inflation target of 5 to 7 per cent and is unlikely to cut interest rates.
Consumer Price Index inflation reached 10.3 per cent in September, a sign that industry, business and households will bear the brunt of cost-push price pressure. With global oil prices uncertain, experts see little chance of a rate cut to lift economic activity. The SBP is expected to hold a tight stance in support of what it calls sustainable growth.
SBP monetary policy: key figures at a glance
| Indicator | Figure |
|---|---|
| September CPI inflation | 10.3 per cent |
| FY27 inflation target | 5 to 7 per cent |
| Current policy rate | 11.5 per cent |
| One-year T-bill cut-off yield | 12.49 per cent |
| Next MPC meeting | Oct 26 |
Industry warns of jobless growth
For four years, the government and the SBP have settled for low but sustainable growth of around 3 to 3.7 per cent. That pace creates no jobs and does nothing for the 44 per cent of Pakistanis living in poverty, analysts say.
“There is no domestic or foreign investment, and existing industries are struggling to survive. The situation would not change unless a comprehensive economic policy is introduced to support domestic investment, which is being undermined by inflated energy prices and overall double-digit inflation,” said Amir Aziz, a manufacturer and exporter of textile made-ups.
Energy costs remain a sore point. “Inflation is only one factor. Bangladesh is in a much better position, as energy costs about 7 to 8 cents per unit, compared with 14 to 16 cents in Pakistan. This gives Bangladesh an advantage over Pakistani products,” said Mohammad Hasham, who recently returned home after 25 years heading some of Bangladesh’s largest textile units. He said double-digit inflation was killing both industry and investors, while economic activity was slowing and hurting the general public.
What the Oct 26 decision means for borrowers
Tresmark Chief Executive Faisal Mamsa said Pakistani authorities reportedly expect inflation to average around 7.5 per cent if oil returns towards $80 a barrel, and around 8.2 per cent if it stays near $100. “They also expect inflation to moderate after December and argue that the current 11.5pc policy rate remains appropriate,” he said.
Many experts disagree that the rate will stay put. The government raised cut-off yields by up to 75 basis points at Wednesday’s Treasury bill auction, with the one-year tenor touching 12.49 per cent. The jump in returns on risk-free government paper points to a possible rise in the policy rate when the Monetary Policy Committee meets on Oct 26.
For borrowers and businesses, a rate hold keeps lending costs high. A hike would push them higher still, adding pressure on working capital and investment plans.
Mamsa said the stable rupee helps contain imported inflation, while higher domestic fuel prices let demand and imports adjust. “The IMF, meanwhile, continues to emphasise a more market-based exchange rate. The authorities are reluctant to reopen the imported inflation Pandora’s Box,” he said. He added: “If remittances remain strong, reserves continue improving, the current account stays manageable, and the dollar demand remains contained, price discovery can still produce a stable currency.”
Frequently asked questions
When is the SBP’s next monetary policy decision?
The Monetary Policy Committee meets on Oct 26, when it will set the policy rate currently at 11.5 per cent.
Will interest rates come down soon?
Most experts expect the SBP to hold rates or possibly raise them. The rise in T-bill yields to 12.49 per cent on the one-year tenor suggests a hike is on the table.
Why is the SBP missing its inflation target?
Cost-push pressures and uncertain global oil prices have pushed September CPI to 10.3 per cent, well above the 5 to 7 per cent FY27 target band.
