Multiple credible sources and central bank communiqués suggest that the State Bank of Pakistan (SBP) is preparing to sharply raise its benchmark interest rate on 27 April by 150-300 basis points to around 12-14 percent in response to rising inflationary pressures linked to the ongoing US-Israel war against Iran and its spillover effects on the domestic economy.
Sources told ProPakistani that the upcoming meeting of the monetary policy review committee (MPC) is very critical. Purchasing power is expected to be badly impacted for the coming few months if the rate is increased.
Petrol and inflation rates have already shown their contractual effects due to the regional situation, a former NUST Islamabad Professor told ProPakistani.
“The latest IMF loan could help offset this pressure if the agreed-upon $1.2 billion arrives before 20 April. They will be reflected in our forex reserves before the next MPC meeting,” he added.
The federal government and SBP have already informed the International Monetary Fund (IMF) that they’re ready to tighten monetary policy if inflation intensifies further.
From what we’ve seen so far, global central banks are cautious with rate decisions since geopolitical uncertainty complicates economic outlooks.
The expert said policymakers are evaluating a significant upward adjustment in the key policy rate to contain imported inflation and stabilise the exchange rate. While the official policy rate currently stands at 10.50 percent, insiders indicate that a total hike of up to 200 basis points is imperative for containing inflationary aftershocks.
Why is this important?
- Global oil and food prices are surging, especially since the Gulf war disrupted supply chains and energy markets.
- Rising inflation has hit households and businesses.
- The government’s presentation to the IMF highlighted the readiness to act preemptively rather than reactively. The petroleum division has taken the first step by massively hiking fuel prices.
Market Reaction
The professor said lending rates could climb sharply, making credit more expensive for consumers and businesses.
He explained that after the MPC rate hike, borrowing costs for businesses may rise, while deposit rates for fixed-income accounts may also increase. This means savings instruments may offer better returns to fixed deposit holders in the country.
Overall, the upcoming MPC review could be one of the most consequential updates in recent years.
