The State Bank of Pakistan (SBP) on Monday decided to keep the policy rate unchanged at 11 per cent.
The policy rate has remained unchanged at 11 per cent since May, even as trade and industry continue to press for a substantial reduction to support economic activity.
Most analysts and researchers had expected the central bank to keep the policy rate unchanged. Bankers and market experts cited two major reasons for maintaining the status quo — the recent floods in Khyber Pakhtunkhwa and Punjab that damaged crops and infrastructure, and rising inflationary pressures.
The Sensitive Price Index (SPI) increased by five per cent week-on-week, ending Oct 23, mainly due to higher food prices. Analysts said the surge reflected the impact of flood-related disruptions and warned that it would feed into the Consumer Price Index (CPI) in the coming months.
Fears of higher inflation have discouraged the central bank from considering a rate cut despite weak growth and a wide gap between inflation and the real interest rate.
SBP data shows that private-sector credit demand remains subdued, with businesses largely avoiding new borrowing even after the first quarter of the current fiscal year. Economic growth has remained sluggish over the past three years, deepening social and fiscal challenges. Nearly 97 million people are estimated to be living below the poverty line.
The government continues to struggle to revive growth and attract both domestic and foreign investment, particularly in manufacturing and agriculture. Industry leaders argue that high borrowing costs and an onerous tax regime have hurt competitiveness more than market pressures at home or abroad.
More to follow
