Pakistan’s central bank faces a tough balancing act as economists debate whether raising interest rates could do more harm than good.
According to Beyond Time News, leading brokerage firms have advised the State Bank of Pakistan (SBP) to avoid increasing the policy rate in its upcoming Monetary Policy Committee (MPC) meeting. They argue that a rate hike may slow economic recovery without effectively controlling inflation.
Why Experts Oppose a Rate Hike
Analysts at Arif Habib Limited believe the current policy rate of 10.5% should remain unchanged. They say inflation pressures are mostly driven by supply-side factors like fuel prices, not excessive demand.
They also point out that global oil prices remain volatile rather than consistently rising. This makes aggressive monetary tightening less effective in controlling inflation.
Pakistan’s inflation stood at 7.3% year-on-year in March. Experts consider this level relatively stable, with projections suggesting moderate increases in the coming months.
Read more:Pakistan Among Top 10 Countries Facing Severe Food Insecurity
Growth Risks Remain a Concern
The bigger worry is economic growth. Pakistan’s GDP expanded by 3.89% in the second quarter of FY26, but analysts say this recovery remains fragile.
A rate hike could:
- Increase borrowing costs for businesses
- Slow investment and industrial activity
- Put additional pressure on consumers
Experts warn that tightening policy too soon could disrupt this recovery phase.
External Position Shows Improvement
Pakistan’s external sector has shown positive signs. The country recorded a current account surplus of $1.07 billion in March, supported by strong remittances and a reduced trade deficit.
Foreign exchange reserves have also improved, reaching $15.1 billion. This includes inflows such as:
- Deposits from Saudi Arabia
- Eurobond issuance
- Expected IMF funding
These factors reduce the immediate need for aggressive policy action.
“Wait-and-See” Approach Gains Support
Another brokerage, AKD Securities, supports a cautious approach. It suggests the central bank should monitor global developments before making any major decision.
The firm highlights that targeted government measures—like subsidies and fuel adjustments—can help manage inflation without raising interest rates.
Market Still Divided
Not all experts agree. Topline Securities reports that market sentiment has shifted slightly toward a rate hike.
A recent survey shows:
- 53% expect a rate increase
- 43% expect no change
- A small group expects a cut
This reflects ongoing uncertainty, especially due to global tensions and rising oil prices.
Final Outlook
The SBP now faces a critical decision. On one side, inflation pressures persist due to external factors. On the other, economic growth needs protection.
For now, many analysts believe holding rates steady may be the safer option—allowing Pakistan’s economy to stabilise while keeping inflation under control.
The upcoming policy decision will play a key role in shaping Pakistan’s economic direction in the months ahead.
