SPB under pressure to raise policy rate by 50 bps amid high fuel prices

Islamabad: Increase in inflation in 2026-27 and a global trend of higher interest rates have forced the State Bank of Pakistan to take cautious steps regarding the policy rate to be announced in meeting of the Monetary Policy Committee on Monday.

The current interest rate is 11.5 per cent, but trade and industry think it is high compared to competitive markets. Bankers anticipate a status quo, but some analysts believe the central bank will lift its policy rate by 50 basis points at the Monetary Policy Committee meeting. Institutional traders expect 50bps rate hike; analysts see status quo

 The SBP raised its policy rate to 11.5pc by 100bps on April 27 in response to rising global energy prices and supply chain risks. As the war in the Gulf expands to the Red Sea, fuel prices have shot above $100 as constant attacks have made it impossible for oil tankers to cross the route.

 Some analysts said the central bank is in a difficult position on tightening its monetary policy stance amid rising inflation. However, the SBP is believed to prefer maintaining the status quo. Inflation returned to double digits to 11.1pc in August after falling to 9.2pc in July.

 For instance, the global markets are going awry. Brent is above $105, the ECB (European Central Bank) has raised rates by 25bps, global bond yields have surged, and US inflation remains elevated around the 3.4pc mark. “None of these problems started in Pakistan, but the SBP may increasingly have to respond to them,” he said.

Bloomberg Economics and BMI have now moved to a similar view, expecting no change on Monday but growing upward pressure on rates going forward.