SBP to announce monetary policy tomorrow amid inflationary pressures

KARACHI: The State Bank of Pakistan (SBP) will announce its monetary policy decision on Monday, with market participants anticipating an increase in the key policy rate amid persistent inflationary pressures and rising global oil prices.

The SBP’s Monetary Policy Committee (MPC), chaired by the governor, is scheduled to meet to review the country’s economic outlook and decide the policy rate, currently standing at 11.5 per cent. The decision will be announced at a press conference following the meeting.

The central bank last raised the policy rate by 100 basis points to 11.5 per cent in April and kept it unchanged at its subsequent meetings in July and September. The April increase was its first rate hike in nearly three years.

Market expectations have shifted towards monetary tightening ahead of Monday’s announcement.

Most financial experts expected a 50-basis-point increase, while some economic stakeholders were calling for a hike of up to 100 basis points to contain inflation.

The MPC will assess the latest trends in inflation, economic activity and the external sector, including imports, exports and exchange-rate movements. International oil prices and other global commodity prices will also be important considerations, particularly given the risk that higher energy and transportation costs could feed into domestic prices.

The committee is also expected to review indicators relating to large-scale manufacturing, crop production and fluctuations in food prices, alongside other economic data that could influence the inflation outlook and the pace of economic growth.

At its September meeting, the MPC kept the policy rate unchanged by a majority vote of seven out of 10 members. The committee noted that headline inflation had risen to 11.1 per cent year-on-year in August from 9.2 per cent in July, while warning that escalating tensions in the Middle East had pushed up global commodity prices and prolonged supply-chain disruptions.

The latest decision will involve balancing the need to contain inflation against concerns that higher borrowing costs could constrain business investment, industrial activity and economic growth.

While some bankers and analysts believe a rate increase is needed to address inflation risks, representatives of industrial and trade bodies have argued that higher interest rates would raise financing costs and put further pressure on businesses. Some industry groups have called for the policy rate to be brought down to single digits.

The SBP’s medium-term objective is to bring inflation within the target range of 5 to 7 per cent while maintaining price stability. Monday’s decision will indicate how the central bank intends to respond to the latest inflation risks while supporting sustainable economic activity.