Pakistan’s central bank is widely expected to maintain its benchmark interest rate at 10.5 percent during its upcoming monetary policy review scheduled for Monday, according to a Reuters poll of financial analysts. The cautious outlook comes as rising global energy prices and heightened geopolitical tensions create uncertainty around inflation trends, limiting the central bank’s ability to continue with aggressive rate cuts.
All ten analysts surveyed in the poll projected that the State Bank of Pakistan (SBP) would keep the key policy rate unchanged, continuing the stance adopted during the previous policy meeting in January when the central bank also opted to hold rates steady. The decision reflects growing concerns about external economic risks, particularly those tied to Pakistan’s heavy reliance on imported energy.
The central bank has already implemented significant monetary easing over the past year. Since mid-2024, the SBP has reduced its policy rate by a cumulative 11.5 percentage points from a historic peak of 22 percent, one of the highest levels seen in Pakistan’s financial system. Those reductions were introduced as inflation gradually slowed and policymakers attempted to support economic activity following a period of severe monetary tightening.
However, fresh global developments have complicated the inflation outlook. Escalating tensions in the Middle East after military strikes by the United States and Israel on Iran have raised fears of disruptions to shipping routes through the Strait of Hormuz, a critical channel for global oil supplies. Concerns over potential supply interruptions have pushed international oil and gas prices higher, creating renewed pressure on energy-importing economies such as Pakistan. For Pakistan, which depends heavily on imported fuel to meet domestic demand, rising oil prices can quickly translate into higher import bills and renewed inflationary pressure. Analysts warn that this external vulnerability could influence the central bank’s policy decisions in the coming months. Market observers currently expect Pakistan’s inflation rate to average between 6 percent and 8 percent over the next several months. However, analysts note that any sustained increase in global energy prices could push inflation beyond these projections.
Muhammad Aliv, an analyst at AKD Securities, stated that energy costs will remain a key factor in shaping the country’s monetary policy path. He estimates that inflation could average around 7 percent during the second half of fiscal year 2026 if current trends persist. Financial analysts also highlight the broader economic impact of rising energy prices. According to Waqas Ghani, head of research at JS Capital, higher oil prices tend to widen Pakistan’s trade deficit while also placing downward pressure on the national currency. These dynamics complicate the central bank’s efforts to balance inflation control with economic growth.
Ghani estimates that every $10 increase in global crude oil prices can add approximately 0.5 percentage points to Pakistan’s inflation rate. The country’s inflation rate already climbed to 7 percent in February, up from 5.8 percent recorded in January, indicating that price pressures are beginning to strengthen again. The SBP has emphasized that maintaining a positive real interest rate remains a central objective under Pakistan’s ongoing $7 billion programme with the International Monetary Fund. The policy approach is designed to anchor inflation expectations and preserve macroeconomic stability during a period of economic recovery.
Despite the risk of inflation temporarily exceeding the central bank’s target range of 5 percent to 7 percent, policymakers expect economic conditions to gradually improve. Governor Jameel Ahmad recently indicated that the central bank remains focused on achieving medium-term price stability while supporting moderate economic growth. The SBP projects that Pakistan’s economy could expand between 3.75 percent and 4.75 percent during the fiscal year 2026. The anticipated growth is expected to be supported by stronger domestic demand and the impact of earlier monetary easing.
Still, economists caution that external risks remain significant. Persistently high oil prices, continued pressure on the Pakistani rupee, and a widening trade deficit could delay any additional reductions in interest rates. As a result, analysts believe the central bank may adopt a wait-and-see approach in the near term while monitoring global energy markets and domestic inflation indicators closely.
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