Karachi: Pakistan State Bank (SBP) is expected to maintain the current interest rate at 11 percent in its next monetary policy announcement on Monday (September 15). The interest rate has remained unchanged since May, when it was reduced to 11pc.
Although commercial and industrial groups have been asking for more cuts to stimulate economic activity, the SBP has remained without being moved. Despite a significant decrease in inflation, which has provided the opportunity to reduce the real interest rate, political leaders are cautious about the long -term perspective. The gap between inflation and the policy rate is currently slightly below 8PC, but concerns about possible future inflation peaks, particularly after recent floods, could boost the SBP to maintain the stable rate.
A survey conducted by the Chartered Financial Analyst Institute (CFA) revealed that the 92PC of respondents expects the interest rate to remain unchanged in the next policy review. The SBP monetary policy committee had maintained the stable rate at the previous meeting, citing possible inflation risks of the increase in energy prices and geopolitical tensions, despite the fact that inflation had been moderate.
Floods in the country have added pressure to inflation, particularly in agriculture products, with important price increases for articles such as rice and vegetables. Prices have increased in RS30 to RS40 per kg, marking a clear divergence of relatively stable prices observed in August.
CFA’s survey shows that 92pc expect status quo due to floods and inflation peaks
The CFA survey also showed that only 6pc of respondents believe that there is a possibility of a 50 basic points (BP), while 2PC foresees a smaller 25 PB reduction.
Mohammad Youunus, president of the Research Council and Policy Advisor (PRAC), said that despite the inflation of the holders that remain in a single digit since August 2024, the restrictive position of the SBP has led to real interest rates of around 8PC, one of the highest in the region. In comparison, the real interest rate of India is 4PC, that of Bangladesh is 1.7pc, those of China are in 3.4pc and Vietnam is in 1.3pc.
Youun said that Pakistan’s economy is showing clear signs of weak demand. “The low sustained inflation in the range of 2-3pc for six months indicates that restrictive policies have significantly limited economic activity, suppressing demand,” he said.
This demand suppression is aggravated by high indebted costs, with the real interest rate of 8PC that exceeds the real growth of the country’s GDP.
During the last decade, Pakistan’s Investment Relationship has averaged only 0.6pc, well below regional pairs such as India (1.6pc), China (1.3pc), Vietnam (4.6pc) and Turkey (1.4pc). Youunus called this “an investment famine” caused by prohibitively high indebtedness costs, which have stifled the expansion of the private sector.
Posted in Dawn, September 13, 2025
