Stakeholders see monetary tightening tomorrow

Why This Matters

Key context: <p>KARACHI: Amid inflationary pressure from costly oil imports linked to the Middle East conflict, economic stakeholders have called for a 50- to 100-basis-point hike in interest rates to curb inflation.</p> <p>The State Bank of Pakistan’s (SBP) Monetary Policy Committee is scheduled to meet on Monday, while the financial market is filled with speculation. However, it was observed that most of the financial experts believe a 50bps hike in the interest rate is imminent. The SBP’s policy rate is 11.5 per cent.</p> <p>Analysts and bankers said the central bank appears to be caught between a rate hike and the long-awaited breakthrough in economic growth. </p> <p>“I am sure of a 50bps increase in the interest rate, but the market requires a 100bps hike to tame rising inflation,” said Rashid Masood Alam, a senior banker. </p> <blockquote> <p>Bankers say 100bps hike needed to tame inflation as Middle East conflict drives up oil import costs</p> </blockquote> <p>He said the looming US attacks on Iran are another factor that may push inflation higher and prompt the central bank to deliver a rate hike.</p> <p>In the first quarter of FY27, CPI inflation stood at 10.2pc, up from 4.3pc in the same period last year.</p> <p>“A 50bps hike looks like the sensible middle ground. Enough to acknowledge the changing risks, without unnecessarily damaging growth,” said Faisal Mamsa, CEO of Tresmark.</p> <p>A 50bps hike may help preserve confidence and monetary stability but the longer-term challenge is considerably bigger, he said, adding that a100bps hike would increase borrowing costs for the government and private sector, with limited additional benefit over a measured 50bps increase.</p> <p>All key central banks, including the Reserve Bank of India, have raised interest rates, while the IMF expects global inflation to reach 4.7pc in 2026, with a 4.1pc projection for 2027. Inflation is proving harder to contain than previously expected.</p> <p>Experts said the government has decided to pursue growth after achieving sustainability, but many factors are against this approach. The primary concern is the escalating war in the region, rising oil prices, and serious problems for both exports and imports as shipping costs reach their peak. A larger hike would make borrowing and investment even more difficult.</p> <p>“Pakistan has become better at maintaining stability, but we also need to find a way to grow without losing it,” said Mr Mamsa.</p> <p>At the same time, the industry is on the other side, demanding a cut in interest rates to bolster economic activity. </p> <p>“Raising interest rates merely in the name of controlling inflation would not prove effective in any way and would turn out to be a failed measure, the burden of which is always borne by traders and industrialists,” said Pakistan Chemicals and Dyes Merchants Association Chairman Saleem Mukati.</p> <p>Korangi Association of Trade and Industry and SITE Association of Industry also demanded that the interest rate be brought down to single digits.</p> <p><em>Published in Dawn, October 25th, 2026</em></p> This development from dawn.com highlights ongoing changes in the sector.