SBP to Maintain Rates Amid Inflation, Growth Concerns

KARACHI: The State Bank of Pakistan (SBP) is poised to maintain its policy rate in the upcoming Monetary Policy Committee (MPC) meeting, adopting a cautious stance due to fears of inflation exceeding the SBP’s 5–7% target range over the medium term, coupled with U.S. tariff implications and double-digit growth in key economic indicators, according to AKD Research’s latest report.

The research firm emphasized the need for a balanced approach to recover lost economic growth while curbing inflationary pressures triggered by food supply chain disruptions and managing import bills. Despite recent food price spikes, AKD projects inflation to hover at the lower end of the SBP’s 5–7% range, driven by a robust currency, lower global commodity prices, and stable exchange rates. “We anticipate inflation staying within the SBP’s target range, bolstered by a strong currency and declining commodity prices,” the report stated.

AKD sees potential for future rate cuts, citing high real interest rates, a positive current account surplus, foreign exchange reserves covering 2.7 months of imports, and credit rating upgrades from global agencies. However, it revised its earlier 150-basis point (bps) rate cut forecast from December 2025 to June 2026.

Inflation is expected to ease from September 2025’s 5.6% year-on-year peak, with lingering pressures by year-end. “We project inflation to remain at the lower end of the SBP’s 5–7% medium-term target in FY26, supported by moderated Food, Transport, and Housing indices,” the report noted. Food prices are anticipated to stabilize, with recent flood impacts mitigated by stricter retail price regulations.

The report highlighted that a strong currency, fueled by robust remittance inflows, lower interest payments, adequate forex reserves, and renewed international market access post-rating upgrades, will counter inflationary pressures. Structural improvements in the foreign exchange market and enhanced governance are expected to offset reduced subsidies.

AKD underscored that subdued oil and commodity prices will mitigate potential rice export declines, keeping inflation in check. “Low oil and commodity prices will offset any rice export drops, curbing persistent inflationary pressures,” the report concluded.