As inflation is on the rise again and the current account is becoming more negative than it was expected to, the State Bank of Pakistan will hold the interest rate at 11% for now. However, due to the Iran-Israel war, there are now chances that inflation is going to go up, and the State Bank of Pakistan might have to increase the interest rate. The State Bank of Pakistan has said that they are anticipating a spike in inflation due to growth and global trend changes. However, Pakistan's growth rate announced by the government of Pakistan was below expected, as it was only 2.7%, while Sri Lanka, which defaulted on its debts in mid-2022, is performing better than Pakistan. Sri Lanka is performing better than Pakistan. There are no sudden changes in taxes, there are very few tax harassment cases, etc. However, the main hurdle for business in Pakistan is the FBR.
The State Bank of Pakistan said that the upcoming months are very important as they will decide the trend of how things will go. If the Iran-Israel war prolongs, then, of course, it will impact the crude oil price, and then eventually, every good or service price will increase, and then the State Bank of Pakistan will be forced to increase the interest rate. That is why the State Bank of Pakistan governor said that it is very important to be flexible and adjust the interest rate accordingly. It is worth mentioning that Pakistan has committed to the IMF that the State Bank of Pakistan won't apply a negative interest rate, as it is a recipe for disaster for Pakistan, looking at history. Moreover, negative interest rates create trade deficits, subsidize imports, and devalue the currency. The State Bank of Pakistan said that they are looking for USD 2 billion before this FY ends, which will help to increase forex reserves and pay back the Chinese loan as well.
