War fallout sparks rate hike fears

KARACHI: The State Bank is considering raising interest rates in the wake of war-related repercussions, but the timing has not yet been decided, sources in the financial sector said on Friday. The State Bank has been consulting with banks on the new interest rate, with indications pointing to an increase. The monetary policy announcement is scheduled for April 27. “Banks would not face any difficulty if the interest rate is increased, as most of their profits come from investments in government papers; however, it will further distance the private sector from banks’ costly money,” said sources in the banking sector. The indication of a higher interest rate is also evident, given the recent hikes in petrol and diesel prices, with further increases likely in the coming days. At the same time, the government is struggling to keep the prices of other commodities under control. SBP holding consultations with banks, finance ministry officials The country is gradually emerging from the impact of the 28-day war in the region, which burned huge reserves of oil and gas. The government has said prices may rise, but oil will remain available during April, with no shortage expected. “The interest rate hike is linked to the extent of the increase in inflation in March. Inflation will surely rise, but not to any unexpectedly high level,” sources said. In the banking sector, it is believed that an increase of up to 100 basis points in the policy rate could be expected in the next monetary policy. So far, the State Bank has not hinted at any change in the policy rate, but sources said the SBP is in consultation with banks and senior officials in the finance ministry. Any decision regarding the interest rate is likely to follow the government’s important announcement. Prime Minister Shehbaz Sharif, in his address to the nation on Friday, said some key economic decisions would be announced in a few days. The minutes of the SBP Monetary Policy Committee’s meeting available on its website said that since the last MPC meeting (Jan 26), global oil and LNG prices have increased by around 28.1 per cent and 38pc, respectively. In March, the MPC highlighted supply concerns and disruptions to shipping routes in the region, as well as global and domestic economic developments. These concerns led two of 10 committee members to vote for a 50-basis-point increase in the policy rate at the last MPC meeting. The State Bank also noted that expectations regarding the future path of interest rates in advanced economies have shifted slightly upward since the last meeting. The minutes said inflation is expected to increase somewhat faster than earlier anticipated, mainly due to the war-induced surge in global energy prices, as well as increases in freight and insurance charges and the low base effect of electricity tariffs. The meeting was held on March 9. Since then, oil prices have risen to more than double their pre-war levels, while the war continues with all its devastation. The prolonged war has disrupted Pakistan’s exports to the Middle East, raising fears that many Pakistanis may lose jobs, remittances may decline, and the balance of payments could face serious pressure. So far, remittances remain intact, the exchange rate is stable, and the State Bank’s reserves have been increasing on a weekly basis. Published in Dawn, March 28th, 2026

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