The State Bank of Pakistan (SBP) has raised the base interest rate by 1 percent to 11.50 percent, which will be effective from April 28th. According to the SBP, due to the prolonged war in the Middle East, global oil prices, freight costs and insurance premiums are continuously increasing, as well as the disruptions in the supply chain impacted the inflation rate, which surged to 7.3 percent in March, and is estimated to reach up to 10 percent in the coming months.
According to the Central Bank’s statement, the aim of hiking the interest rate is to keep inflation expectations under control and prevent the effects of rising global prices from spreading to the domestic economy. On the other hand, the GDP growth in the first half of FY26 has been recorded at 3.8 percent, however, the annual target may be slightly reduced due to fears of reduced wheat production.
Conversely, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has rejected the interest rate hike and warned of industrial closure and economic stagnation, while talking to Daily Times, Saquib Fayyaz Magoon, the Senior Vice President of FPCCI said, 1 percent hike in the interest rate impacts the exporters by 3 to 4 percent, reducing the competitivenes in the international market, the rise in inflation is linked with the oil prices, the government should have cooled her heels for the US-Iran Ceasefire, which is expected sooner.
Karachi Chamber of Commerce and Industry (KCCI), and seven industrial zones of Karachi have also raised their concerns. Rehan Hanif, the President of the KCCI has tagged Central Bank’s decision as ‘imprudent’, which shall sluggish the economic growth, and has urged the Governor SBP to revisit its monetary stance to support sustainable economic development.
Nonetheless, while highlighting the liquidity, the State Bank affirmed that, due to the IMF Program and the issuance of Eurobonds in the global market after four years, the State Bank’s reserves have reached $15.8 billion and are projected to exceed $18 billion by June 2026. Whereas, the production of large-scale manufacturing has increased significantly by 5.9 percent, which indicates an improvement in economic activities. However, the FBR’s tax collection target has been recorded to be short by Rs611 billion so far, which is concerning. The State Bank believes that inflation will remain above the set target of 5 to 7 percent for most of the next fiscal year.
In the wake of the entire scenario, Pakistan’s financial outlook seems to depend on the Middle East war, crude oil prices and perhaps President Trump’s statements.