State Bank of Pakistan unlikely to meet FY27 inflation target, analysts say
Pakistan’s central bank is unlikely to meet its FY27 mid-term inflation target of 5-7 per cent and is expected to keep monetary policy tight, analysts and financial experts said, as September Consumer Price Index inflation came in at 10.3 per cent. The reading indicates that industry, businesses and the general public are bearing the brunt of cost-push pressures, and experts expect the State Bank of Pakistan to refrain from cutting interest rates to stimulate economic activity, preferring a stance it describes as supporting sustainable growth.
For the past four years, the government and the SBP have been satisfied with low but sustainable growth of around 3 to 3.7 per cent, a level that creates no jobs and does not address the severe problem of 44 per cent of Pakistanis living in poverty. Amir Aziz, a manufacturer and exporter of textile made-ups, said there is no domestic or foreign investment and existing industries are struggling to survive. He said the situation would not change unless a comprehensive economic policy is introduced to support domestic investment, which he said is being undermined by inflated energy prices and overall double-digit inflation.
Mohammad Hasham, who recently returned home after serving Bangladesh’s textile industry for 25 years as head of some of its largest textile units, said inflation is only one factor. He said Bangladesh is in a much better position because energy costs about 7 to 8 cents per unit, compared with 14 to 16 cents in Pakistan, giving Bangladeshi products an advantage over Pakistani goods. He added that double-digit inflation is killing both industry and investors, and that economic activity is slowing, causing pain for the general public.
Tresmark Chief Executive Faisal Mamsa said Pakistani authorities reportedly expect inflation to average around 7.5pc if oil returns towards $80, and around 8.2pc if it remains near $100 per barrel. “They also expect inflation to moderate after December and argue that the current 11.5pc policy rate remains appropriate,” he said. However, many experts disagree that the SBP policy rate will remain unchanged at 11.5pc despite double-digit inflation.
The government raised cut-off yields by up to 75 basis points at Wednesday’s T-bill auction, with the highest at 12.49pc for the one-year tenor. The increase in returns on risk-free government papers reflected a possible rise in the SBP policy rate at the next Monetary Policy Committee meeting on Oct 26. Mr Mamsa said the stable rupee helps contain imported inflation and higher domestic fuel prices allow demand and imports to adjust. He said the IMF continues to emphasise a more market-based exchange rate, while the authorities are reluctant to reopen the imported inflation Pandora's Box. A market-based exchange rate parity does not automatically mean a weaker rupee, he added: if remittances remain strong, reserves continue improving, the current account stays manageable and the dollar demand remains contained, price discovery can still produce a stable currency.
