The State Bank of Pakistan (SBP) will announce its policy rate decision on Monday, and market participants widely expect the key rate to go up. The move is being anticipated as inflationary pressures persist and global oil prices climb. The rate currently stands at 11.5 per cent.
The SBP’s Monetary Policy Committee, chaired by the governor, will meet to review the economic outlook before deciding on the rate. The outcome will be shared at a press conference following the meeting.
Rate hike expectations build ahead of the vote
The central bank raised the rate by 100 basis points in April, its first hike in nearly three years, and left it unchanged in July and September. Most financial experts expect a 50-basis-point increase, while some economic stakeholders have called for a rise of up to 100 basis points to contain inflation.
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At the September meeting, the committee kept the rate steady by a majority vote of seven of its 10 members. It noted that headline inflation rose to 11.1 per cent year-on-year in August from 9.2 per cent in July. It also warned that tensions flaring in the Middle East had lifted commodity costs worldwide and prolonged supply-chain disruptions.
Committee weighs inflation against growth and trade costs
The committee will assess the latest trends in inflation, economic activity and the external sector, including imports, exports and exchange-rate movements. International oil and commodity prices are also key, given the risk that higher energy and transport costs could feed into domestic prices.
It is also expected to review large-scale manufacturing, crop production and food price fluctuations, along with other data that could shape the inflation outlook and the pace of growth. The decision therefore involves balancing the need to contain inflation against the risk that higher borrowing costs could curb business investment, industrial activity and growth.
Some bankers and analysts believe a rate increase is needed to address inflation risks. Representatives of industrial and trade bodies, however, argue that higher interest rates would raise financing costs and add further strain on businesses, and some industry groups want borrowing costs cut to single-digit levels.
SBP’s inflation target and what Monday’s decision will show
The SBP’s medium-term aim is to place inflation inside a 5 to 7 per cent target band while keeping prices stable. Monday’s announcement will signal how the bank plans to tackle current inflation risks without undermining sustainable economic activity.
