SBP faces tough call as inflation surges

The State Bank of Pakistan (SBP) is facing a challenging decision over its monetary policy as renewed inflationary pressures and rising global energy prices complicate the economic outlook.

The central bank is scheduled to announce its latest policy rate decision at the Monetary Policy Committee meeting on Monday. The key interest rate currently stands at 11.5 per cent after the SBP increased it by 100 basis points on April 27 in response to higher international energy costs and growing supply-chain risks.

Market expectations remain divided. Bankers largely anticipate that the central bank will maintain the policy rate at its current level, while some analysts and institutional traders expect a further increase of 50 basis points to contain inflationary pressures.

Pakistan’s inflation rate rose sharply to 11.1 per cent in August, returning to double-digit territory after standing at 9.2 per cent in July. The renewed increase has raised concerns that the SBP may eventually have to adopt a tighter monetary stance despite pressure from businesses and industries for lower borrowing costs.

The economic uncertainty has also been intensified by the prolonged conflict in the Gulf region. Rising tensions and disruptions around the Red Sea have pushed international fuel prices above $100 per barrel, increasing risks for countries dependent on imported energy.

Faisal Mamsa, CEO of Tresmark, said Pakistan’s interest-rate outlook could increasingly be influenced by international inflationary pressures rather than domestic conditions alone.

He pointed to higher Brent crude prices, rising global bond yields, elevated US inflation and recent monetary tightening by major central banks as factors that could influence the SBP’s policy direction.

A Tresmark poll of institutional traders found that 20 per cent expected a 50-basis-point increase at Monday’s meeting. However, Mamsa maintained that keeping the policy rate unchanged remained the most likely outcome.

Bloomberg Economics and BMI have also projected a status quo for Monday, although both expect pressure for higher interest rates to build if inflationary and external risks persist.