The State Bank of Pakistan (SBP) maintained its policy rate at 11 per cent, after many analysts cited inflation risks from rising global commodity prices amid Iran-Israel tensions.
The central bank’s policy rate, after being slashed by 1,000bps from 22pc since June 2024 in seven intervals, was cut to 11pc last month.“The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 per cent,” the SBP said in a statement.
Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict.The MPC observed that global oil prices had “rebounded sharply, reflecting the evolving geopolitical situation in the Middle East and some ease in US-China trade tensions”.
“Taking stock of these developments and potential risks, the committee assessed that the real interest rate remains adequately positive to stabilise inflation within the target range of 5–7pc,” the MPC stressed.
The escalating hostilities after Israel’s attacks on Iran on Friday had triggered a sharp spike in oil prices — a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.
Eleven of 14 respondents in a snap poll by Reuters expected the SBP to leave the benchmark rate unchanged at 12pc. Two forecast a 100 basis-point (bps) cut and one predicted a 50bps cut.On inflation, the MPC noted that the recent uptick in May to 3.5pc year-on-year was in line with its expectation, whereas core inflation declined “marginally”.
The headline inflation had hit an all-time low of 0.3pc YoY after declining for several months from around 40pc in May 2023.The MPC said inflation was expected to “trend up and stabilise” in the target range. The SBP expects average inflation to range between 5.5pc and 7.5pc for the current fiscal year, which ends this month.
“This outlook, however, remains subject to multiple risks emanating from potential supply-chain disruptions from regional geopolitical conflicts, volatility in oil and other commodity prices, and the timing and magnitude of domestic energy price adjustments,” the committee added.
