Will the policy rate stay put?

Business Recorder · 23/10/2026، 12:47:19 AM

EDITORIAL: The Monetary Policy Committee meeting to review the 11.5 percent policy rate is scheduled for 26 October and there are serious concerns that the rate may be raised as inflation remains in double digits due largely to the rise in the international prices of petroleum and products as the Middle East conflict will enter eighth month on the 1 November. In May, the Consumer Price Index (CPI) was 11.7 percent, in June 11.1 percent, dipping in July to 9.2 percent and rising again to 11.1 percent in August and with a less than one per cent decline in September to 10.3 percent. In contrast, core inflation has been more resilient, hovering between 8.6 percent in September and 8.8 percent in August 2026 - an indicator used to justify the MPC’s decision not to raise the policy rate since 28 April 2026 – a rate that remained prevalent even when core inflation rose from 7.4 percent in March this year to 8 percent in April and 9 percent in May. This lack of synchronicity between inflation and the policy rate is justified through business survey results undertaken by the State Bank of Pakistan and the consistent claim in the Monetary Policy Statement that medium-term inflation outlook remains between 5 and 7 percent. It is little wonder that the prevailing opinion of independent economists is that the actual decision to adjust the policy rate is taken during discussions with the International Monetary Fund (IMF), which may explain why there is no majority decision on the rate. In this context it is relevant to note that after each quarterly review under the ongoing Extended Fund Facility programme there is an exhortation to maintain “an appropriate monetary stance,” which in the 7 October press release issued after the fourth staff-level agreement was reached clarified that the SBP “should continue maintaining appropriately tight policy stance to ensure inflation returns durably to the SBP’s target range.” It is relevant to note that in Pakistan the linkage between the p