State Bank of Pakistan likely to miss inflation target, say analysts
As the world grapples with volatile global energy markets, the State Bank of Pakistan is unlikely to meet its FY27 mid-term inflation target of 5 to 7 percent, financial experts and analysts said. Consumer Price Index-based inflation registered at 10.3 percent in September, signaling continued cost-push pressures for industry, businesses, and consumers.
Interest Rates Remain Tight While Inflation Persists Above Target
The central bank is expected to maintain a tight monetary stance rather than lower interest rates to stimulate economic activity, according to insights published by Dawn. For the past four years, authorities have sustained growth rates of around 3 to 3.7 percent. Financial analysts note this level creates minimal job growth and fails to address poverty affecting 44 percent of the population.
“There is no domestic or foreign investment, and existing industries are struggling to survive,” said Amir Aziz, a manufacturer and exporter of textile made-ups. He added that the situation will not change without a comprehensive economic policy supporting domestic investment, which faces pressure from inflated energy prices and double-digit inflation.
Higher Energy Costs Weaken Pakistani Industrial Competitiveness
Industrial competitiveness faces mounting pressure from regional utility costs. Mohammad Hasham, who spent 25 years heading large textile units in Bangladesh before returning home, pointed to a stark regional contrast.
Energy costs approximately 7 to 8 cents per unit in Bangladesh compared to 14 to 16 cents in Pakistan. This disparity gives competing regional producers a structural advantage over Pakistani goods while double-digit inflation strains local manufacturing operations.
Meanwhile, Tresmark Chief Executive Faisal Mamsa outlined two primary oil price scenarios considered by authorities. Pakistan’s authorities project inflation to average roughly 7.5 percent if global oil prices return toward $80 per barrel, rising to about 8.2 percent if prices remain near $100 per barrel.
T-Bill Yields Rise Ahead of October Policy Meeting
Authorities anticipate inflation moderating after December while maintaining the current 11.5 percent policy rate as appropriate. However, market participants observed a divergence in recent debt auctions.
The government raised cut-off yields by up to 75 basis points during a T-bill auction, hitting a high of 12.49 percent for the one-year tenor. This increase in risk-free government paper yields points toward a possible policy rate hike at the upcoming Monetary Policy Committee meeting scheduled for October 26.
At the same time, Mamsa noted that a stable rupee helps contain imported inflation, though the International Monetary Fund continues to emphasize a more market-based exchange rate. Authorities remain hesitant to reopen imported inflation pressures, while market observers monitor whether strong remittances and manageable current account balances can sustain currency stability.