Economists have warned that more interest rate increases may follow in Pakistan if oil prices stay high. The SBP interest rate warning comes days after the State Bank of Pakistan raised its policy rate by 50 basis points to 12 per cent.
The central bank moved after inflation reached 10.3 per cent in September. Economists who spoke to The Express Tribune said energy and food prices now shape the outlook, and they warned that borrowing costs could stay high for months.
Dr Abid Qaiyum Suleri, an economist at the Sustainable Development Policy Institute, said the increase reflected concern that temporary supply shocks could turn into lasting inflation. He said energy prices may stay high, partly on fears of another wave of United States and Israeli attacks on Iran after the United States midterm elections, and possible Iranian retaliation against Gulf states.
That outlook leaves little room for rate cuts, he said. Policy may stay tight unless energy prices settle and inflation falls in a sustained way. The State Bank projects economic growth of 3.5 to 4.5 per cent in fiscal 2027, but Suleri warned that high borrowing costs could hold back the recovery.
What the SBP interest rate warning means for borrowers
Dr Sajid Amin Javed, deputy executive director at the institute, said the increase was expected. Double digit inflation, a recent rise in world oil prices and fears of a longer United States and Iran conflict had worsened the outlook, he said.
The State Bank had kept the policy rate unchanged since April 2026, hoping world oil prices would settle and bring inflation down. Renewed oil price rises and fears of further escalation changed that view, Javed said, and pushed the Monetary Policy Committee to act.
He called the move necessary at double digit inflation, saying small adjustments signal the central bank’s commitment to price stability, even though higher rates do not directly lower supply driven inflation.
But he warned that if conflict fears persist and oil stays high, the central bank could add a series of gradual increases over the next three to four months. That would slow an already weak economy further, although he said the rate would not return to its earlier peak.
Javed projected average headline inflation of 11 to 13 per cent in fiscal 2026-27, higher than earlier estimates. He also said economic growth could fall below 3.5 per cent.
PIDE urges caution on further tightening
Dr Nasir Iqbal, professor of economics and registrar at the Pakistan Institute of Development Economics, took a different view. He argued that holding the policy rate at 11.5 per cent would have been a more balanced response to the risks.
Price pressures come largely from supply side limits, not excess demand, he said, citing the institute’s October 2026 assessment. Energy prices, food prices and external shocks remain the main sources of inflation. Higher rates cannot fix those limits directly. Instead, tighter policy raises borrowing costs for firms, discourages private investment and adds to the government’s debt servicing burden.
With September inflation at 10.3 per cent and growth still modest, Iqbal said further tightening risked adding pressure on businesses without fixing the causes of inflation. He urged the central bank to avoid more increases unless clear evidence shows inflation has become broad based and persistent.
A forecast that clashes with the governor’s message
The warning landed on the same morning the State Bank governor struck a calmer note. Governor Jameel Ahmad told graduates in Karachi that inflation should ease gradually towards the target range, supported by prudent monetary tightening. Read his speech here: SBP Governor Says Economic Data Improves Despite Shocks.
The gap frames the debate: the governor points to a recovery under way since 2022, while the economists point to oil prices and war fears that could push inflation to 11 to 13 per cent.
