State Bank announces New Monetary Policy today; Here’s What to Expect | CVHD

KARACHI – Borrowing costs in Pakistan could rise again as State Bank of Pakistan (SBP) prepares to reveal monetary policy decision today, with a majority of financial market participants expecting interest rate increase amid mounting inflation fears and soaring global oil prices.

Monetary Policy Committee (MPC) is meeting for third time in the current fiscal year, facing difficult choice between controlling inflation and protecting an economy still struggling with expensive borrowing, rising business costs and uncertainty in international markets.

The benchmark interest rate currently stands at 11.5%, several leading financial institutions predict that central bank could increase it to 12%, reversing its recent preference for keeping borrowing costs stable.

The biggest concern is the continuing conflict in the Middle East, which has disrupted international energy supplies, pushed commodity prices higher and raised fears of another inflationary shock for Pakistan.

A fresh survey by Karachi based brokerage firm suggests that financial markets are increasingly preparing for higher interest rates. The survey found that nearly two third of market participants expect central bank to increase the policy rate at Monday’s meeting, compared with 39% who believe the SBP will leave it unchanged.

Among respondents, 54% anticipate a 50-basis-point increase, taking the rate to 12%, while 7% expect a sharper 100-basis-point hike that would push it to 12.5%.

SBP Monetary Policy Decisions 2024 to 2026

SBP keeps Interest Rate at 11.5% as Oil Prices fuel fresh Inflation Fears

Topline Securities itself supports forecast of 50-basis-point increase, arguing that the ongoing geopolitical crisis and uncertainty surrounding global energy supplies have significantly increased the risks facing Pakistan’s economy. The brokerage warned that prolonged disruptions could fuel inflation and create additional pressure on the country’s external financial position.

Another brokarge house also backed expectations of rate hike, forecasting that MPC will increase borrowing costs by 50 basis points. It also pointed to improving economic activity, suggesting that the central bank has room to introduce a measured increase before inflationary pressures become more entrenched.

The Monday’s meeting could have implications for businesses, investors and ordinary Pakistanis. An increase in the policy rate would make fresh borrowing more expensive and could raise repayments on loans linked to floating interest rates. Businesses dependent on bank financing could face higher operating costs, potentially affecting investment and expansion plans.