SBP seen holding tight policy as mid-term inflation target appears out of reach

The State Bank of Pakistan (SBP) is expected to maintain a cautious monetary policy as inflationary pressures look set to remain above its mid-term target. Analysts predict the consumer price index-based inflation will average around 7.5% this year if oil prices rise back to $80 per barrel, or climb to 8.2% if oil hovers near $100 per barrel.

The inflation rate currently stands at 10.3% in September, indicating that both businesses and consumers will have to absorb the cost-push inflation. The SBP is not anticipated to lower interest rates to boost economic activity; instead, it will stick to a tight monetary stance. This stance is geared towards supporting 'sustainable' growth, a trajectory that has been deemed insufficient by the government and the central bank.

Experts argue that the government's and the SBP's preference for low but sustainable growth of around 3 to 3.7% annually has not addressed the pressing issue of poverty in Pakistan, where 44% of the population lives below the poverty line.