Holding policy rate: the right decision
EDITORIAL: The Monetary Policy Committee kept the policy rate unchanged at 11.5 percent which must be supported. Any increase in the rate would have made borrowing costs for the government (the single largest borrower) as well as the private sector prohibitively expensive that, in turn, would have impacted negatively on the growth rate. And a decline would have been opposed by the International…
The Monetary Policy Committee (MPC) decided to keep the policy rate at 11.5 percent on September 14, 2026, ruling out any increase that could have made borrowing costs prohibitively expensive for both the government, the largest borrower, and the private sector. This decision was supported and came with IMF endorsement, which emphasized the State Bank of Pakistan's (SBP) commitment to maintaining a tight monetary policy stance to anchor inflation expectations.
Despite global inflation rising due to the Middle East and Russia-Ukraine conflicts, the SBP remains focused on domestic price stability, as outlined in Section 4B of the SBPO Act 1956. The target range of 5-7 percent has remained consistent throughout the past year's monetary policy statements. However, the MPS warned that risks have increased significantly, including volatility in global commodity prices, electricity and gas tariffs, and food price disruptions due to worsening El Nino conditions.
The IMF mission, scheduled for March 23rd, may demand a rate increase if geopolitical factors continue to affect fuel prices. At present, Pakistan's inflation rate is higher than regional countries like India (4.82%), Bangladesh (8.2%), Sri Lanka (8%), and China (0.8%). The Consumer Price Index rose from 9.2% in July to 11.1% in August, a 1.9% increase.
The policy rate was raised on April 27th by 100 basis points to combat rising inflation. Inflation is expected to gradually ease towards the upper bound of the 5-7% target range by June 2027, provided geopolitical factors no longer impact fuel prices.
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