KARACHI: Pakistan’s central bank kept its benchmark policy rate unchanged at 11.5% on Sept. 14, holding steady for a third consecutive meeting even as inflation accelerated sharply and higher global oil prices renewed pressure on the country’s external accounts.
The State Bank of Pakistan’s decision leaves the policy rate at the same level for more than four months.
Pakistan’s inflation outlook has grown more challenging since the last meeting. National consumer price inflation rose to 11.1% year-on-year in August, up from 9.2% in July, while higher fuel and crude oil prices have increased risks to the import bill and the external account.
A survey by Topline Securities ahead of the meeting showed that 84% of market participants expected the central bank to hold the rate at 11.5%. Another 14% anticipated a 50-basis-point increase, and 2% expected a 100-basis-point hike.
Topline had forecast no change, arguing that inflation in fiscal year 2027 could remain below 9% if oil prices stayed around $95 per barrel. The brokerage estimated that would preserve a positive real interest-rate spread of more than 250 basis points, broadly in line with historical levels.
Improving foreign exchange reserves and a contained current account balance also supported that view, Topline said, pointing in particular to Pakistan’s recent $3 billion Eurobond issuance as strengthening the external outlook.
Secondary-market yields had remained broadly stable before the decision, with three-month and six-month Treasury bills trading at 11.41% and 11.68%, respectively.
Arif Habib Ltd. had taken a more hawkish stance before the meeting, assigning a 60% to 65% probability to a 50-basis-point increase to 12%. The brokerage cited August inflation of 11.1% and a sharply narrower real policy-rate cushion.
With the policy rate at 11.5% and headline inflation at 11.1%, the ex-post real policy rate is only about 40 basis points, AHL noted. It also estimated urban trimmed-mean inflation at around 8.9%, suggesting underlying price pressures were strengthening, and said a 50-basis-point increase could restore a more meaningful positive real rate and help anchor inflation expectations.
AHL acknowledged, however, that a significant part of the latest inflation acceleration is supply-driven, particularly through energy and food prices.
