SBP likely to hold interest rate steady amid flood-driven inflation

ISLAMABAD: The State Bank of Pakistan (SBP) is expected to keep its key policy rate unchanged at 11 percent in its next monetary policy meeting on October 27, as recent floods have pushed inflation higher and dampened hopes for early monetary easing.

According to a market survey by Arif Habib Limited (AHL), nearly 88 percent of respondents believe the central bank will maintain the current rate, while only a small number expect a minor cut of 50 basis points. AHL said that the SBP is likely to stay cautious due to the rise in inflation, a slight widening in the current account deficit, and a fragile domestic recovery.

The brokerage report noted that headline inflation climbed from 3 percent in August to 5.6 percent in September, mainly because of flood-related disruptions in food supply. This has pushed the average inflation projection for the ongoing fiscal year slightly above 7 percent, exceeding the SBP’s target range of 5 to 7 percent.

Despite this, AHL pointed out that core inflation remains steady at 7.3 percent, suggesting that underlying price pressures are contained. It added that industrial output is showing signs of improvement, with large-scale manufacturing growing by 9 percent year-on-year in July, underscoring the importance of policy consistency to sustain business confidence.

Topline Securities, another brokerage firm, echoed a similar view, predicting no change in interest rates for now. It said inflation may temporarily climb to 8 or 9 percent in the latter half of the fiscal year before cooling down.

Analysts agree that while a rate cut could support growth, the SBP is likely to wait, allowing stability to drive the recovery naturally.