Fuel price hike likely to ‘disrupt’ SBP inflation range

The unexpected massive increase in petrol and diesel prices was widely felt as inflationary at the retail level and the State Bank of Pakistan (SBP) may have to review its decision of leaving the key interest rate unchanged. Many analysts believe that the inflation would be in the range of 30-31 per cent in the ongoing month which is against the SBP’s expectation to bring it down to 20-22pc. After keeping its policy rate unchanged at 22pc by the central bank on Sept 14, the government increased the petroleum prices by over Rs26 per litre making it clear that inflation would be higher in September. “The inflation in September would be around 30-31pc but the State Bank expects the average inflation for the FY24 would be 20 to 22pc. I believe the inflation will come down as per the expectations of the SBP,” said Tahir Abbas, head of Research at Arif Habib Limited. The question, however, remained unanswered who stopped the State Bank from increasing the interest rate when the cut-off yields for three-, six- and 12-month were increased to 24.5pc, 24.8pc and 25pc, respectively, at treasury bills auction held on Sept 7. This was a clear indication that the SBP was going to increase the interest rate but changed the idea just before the final decision.