Analysts split on SBP rate call with inflation seen at 10pc in October

Pakistan’s headline inflation is expected to rise to 10pc in October, driven by higher electricity charges, petrol prices and food costs, and analysts are divided over whether the State Bank of Pakistan (SBP) will raise interest rates at its October 26 meeting, The Express Tribune reported.

The case for a hike

A Growth Securities report by Nasheed Malik expects the Monetary Policy Committee (MPC) to raise the policy rate by 50 to 100 basis points. Its forecasts:

• October inflation: 10pc, with the average for the first four months of FY27 at 10.2pc, against 4.8pc a year earlier.
• Transport: the index is expected to rise 0.15pc to 0.20pc month on month after a 5.5pc rise in the average petrol price to Rs396.06 a litre, up 48.3pc year on year.
• Housing: higher electricity charges and LPG prices, projected to rise 6.2pc month on month.
• Food: up 0.25pc to 0.30pc, led by increases of 10pc in wheat, 14pc in chicken, 11pc in pulse gram and 5pc in garlic.

The October projection is above the government’s expected average of 8.9pc for FY27. Malik said real interest rates turned positive in June and are projected to reach 1.5pc in October, up from 1.2pc in September. He expects inflation to stay between 9pc and 10pc until March 2027 if fuel prices remain between Rs390 and Rs400 a litre, with FY27 averaging 9pc to 9.5pc.

The case for a hold

AKD Securities’ director of research, Mohammed Awais Ashraf, argues the SBP has room to hold rates, pointing to:

• robust remittances and improving exports
• record-high foreign exchange reserves
• a contained current account
• a $3 billion Eurobond issued at record-low spreads
• a slowdown in large-scale manufacturing and lower fuel prices since the last MPC meeting

Dubai crude has fallen 15.5pc since the previous meeting, from $127 to $107 a barrel, reflecting better flows through the Strait of Hormuz and the end of seasonal refinery maintenance, AKD said. But renewed Houthi attacks on Saudi infrastructure, Red Sea disruption and falling US oil stocks continue to support prices.

Ashraf raised his FY27 inflation forecast to 9.1pc, assuming oil at $96.3 a barrel rather than $72.5, and kept FY28 at 6pc. He pushed back the expected start of rate cuts to April 2027 from October 2026, citing prolonged high oil prices and a bigger-than-expected rise in wheat prices. AKD expects real interest rates to average 3.4pc over the next 12 months, assuming normal rupee depreciation, a gradual easing of oil prices through February 2028 and further improvement in fiscal discipline.

The International Monetary Fund projects inflation of 7.2pc this fiscal year, up from its earlier estimate of 6.3pc.

What it means for households

For families, both reports point to higher prices for fuel, power and food. Petrol is now priced daily, and the government cut it by Rs2.71 a litre for Thursday, but cooking gas has been selling at twice the official price in many cities. The SBP’s Monetary Policy Committee announces its decision on October 26.