Unchanged policy rate

The SBP's Monetary Policy Committee has kept its benchmark policy rate unchanged at 11.5 per cent. While a general anticipation had been building up for an immediate raise in the policy rate - largely driven by the severe economic pressures of global oil price-fueled inflation across the country - the central bank's strategic decision to opt for a status quo should actually come as a highly welcome surprise for the broader economy. With the inflation rate hovering around 11 per cent, real interest rates remain exceptionally tight. In fact, looking strictly at the core macroeconomic indicators, there is arguably still ample room for the central bank to aggressively raise the policy rate by at least another 100 basis points to firmly anchor inflationary expectations going forward. In this backdrop, the disappointment expressed by the FPCCI makes little economic sense. The representative chamber, in an official statement, laments the MPC's decision, arguing that local trade and industry are in dire need of immediate breathing space to survive the current stagnation-prone economic environment. However, premature monetary easing could severely backfire on price stability. This latest policy decision marks the third consecutive hold by the SBP following a significant 100-basis-point increase implemented back in April, which was notably the first interest rate hike the country had witnessed in nearly three years. The subsequent July meeting had also left the benchmark rate untouched at 11.5 per cent. At that time, the central bank had cited an improving macroeconomic outlook, though they cautiously tempered their optimism by highlighting severe external risks, particularly the conflict in the Middle East. By holding steady once again, the SBP has wisely resisted the pressure to hike rates further, choosing to support economic momentum rather than choking economic growth in the name of inflation control.