Pakistan’s central bank is widely expected to keep the benchmark interest rate unchanged in its upcoming monetary policy meeting scheduled for Monday, March 9, as policymakers assess growing global uncertainties and the potential economic impact of rising oil prices triggered by geopolitical tensions in the Middle East.
The Monetary Policy Committee of the State Bank of Pakistan will hold its second policy review meeting of the calendar year at a time when global markets are experiencing volatility following the escalation of the conflict between the United States and Iran. Market analysts believe the central bank is likely to adopt a cautious stance and maintain the current policy rate at 10.5 percent.
Arif Habib Limited stated in a report released on Friday that the central bank is expected to maintain the status quo, signaling prudence as policymakers navigate an uncertain global economic environment. According to the brokerage house, the rapidly evolving geopolitical situation has already pushed commodity prices higher, particularly crude oil, which has created additional pressure on financial markets worldwide.
The State Bank of Pakistan had previously surprised market participants during its last policy meeting when it opted to keep the policy rate unchanged at 10.5 percent despite expectations from analysts that a rate cut would be announced. The decision reflected the central bank’s cautious approach toward inflation management and external sector stability.
Analysts at Arif Habib Limited believe that the recent flare-up in the Middle East conflict has significantly altered market expectations and increased the likelihood that policymakers will delay any changes to interest rates until the broader implications of the geopolitical crisis become clearer.
The report highlighted that rising global oil prices could create significant economic challenges for Pakistan due to its heavy reliance on imported energy supplies. If international oil prices remain elevated for an extended period, the country’s external account could face considerable pressure.
Estimates cited in the report suggest that every increase of ten dollars per barrel in global oil prices could widen Pakistan’s current account deficit by roughly two billion dollars annually. The increase would also directly push headline inflation higher by approximately 0.4 percent, while indirect effects across transportation, manufacturing, and consumer goods could raise inflation further beyond the central bank’s medium-term target range of five to seven percent.
While the energy price shock presents a major challenge, analysts also pointed out that remittance inflows from overseas Pakistanis could provide some temporary relief to the country’s external account. Transfers from Gulf Cooperation Council countries account for nearly half of Pakistan’s total remittances, and financial inflows from expatriate workers in the region may increase during periods of geopolitical uncertainty.
According to the report, overseas Pakistanis often send additional funds to their families during uncertain times as a precautionary measure. The upcoming Eid season may also support higher remittance inflows in the near term, providing some cushioning effect against rising import costs driven by higher oil prices.
Market sentiment regarding the upcoming monetary policy decision appears overwhelmingly in favor of maintaining the current rate. Arif Habib Limited conducted a survey among market participants which found that 96 percent expect the central bank to keep the policy rate unchanged, while only four percent anticipate a modest cut of 50 basis points.
A similar outlook was shared by Topline Securities, another major brokerage house, which reported a significant shift in investor expectations compared to earlier forecasts. In its latest survey, around 92 percent of respondents expect the central bank to maintain the current policy rate amid the escalating regional conflict and rising energy prices.
Topline noted that this marks a major change from previous expectations when around 80 percent of participants had predicted a rate cut. The shift in sentiment reflects growing concerns about the inflationary impact of higher oil prices as well as broader economic uncertainties tied to geopolitical developments.
Among the remaining respondents in Topline’s survey, six percent expect a small interest rate increase of between 25 and 50 basis points, while two percent believe the central bank could raise rates by as much as 50 to 100 basis points if inflationary pressures intensify further. Notably, none of the surveyed participants currently expect a reduction in the policy rate.
Topline analysts explained that the shift in market perception is primarily driven by concerns over rising oil and liquefied petroleum gas prices, the potential impact on inflation, and the possibility of currency depreciation if Pakistan’s external account deteriorates due to higher import costs.
Although the central bank may maintain its current policy stance in the short term, analysts warn that the evolving geopolitical situation could still alter the interest rate trajectory in the months ahead. If global energy prices continue to climb or remain elevated for a prolonged period, policymakers may be forced to consider tightening monetary policy again to contain inflationary pressures and stabilize the macroeconomic environment.
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