ISLAMABAD: Pakistan’s central bank on Monday decided to keep its benchmark policy rate unchanged at 11 percent, amid inflation risks from rising global commodity prices amid the Iran-Israel conflict.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) weighed emerging inflationary pressures driven by surging global commodity prices.
The central bank’s policy rate, which had been reduced by 1,000 basis points from 22 percent since June 2024 over seven cuts, was lowered to 11 percent last month.
Several broker houses initially anticipated the rate cut but revised their forecasts following the Israeli strikes, which raised concerns of a wider conflict.
“The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 percent,” the SBP said in a statement.
The MPC noted that the increase in inflation in May to 3.5 percent year-on-year (y/y) was in line with its expectation, whereas core inflation declined marginally.
“Going forward, inflation is expected to trend up and stabilize in the target range during FY26,” it said.
The MPC also assessed that economic growth is picking up gradually and is projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts.
“At the same time, the Committee noted some potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows. Moreover, some of the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports. In this regard, the Committee deemed today’s decision appropriate to sustain the macroeconomic and price stability,” read the statement.
The escalating hostilities following Israel’s attacks on Iran last Friday triggered a sharp rise in oil prices — a major concern for Pakistan due to the broader impact on imported inflation amid the risk of a prolonged conflict and tighter crude supplies.
Market expectations
“There remains an upside risk of a rise in global commodity prices in light of geopolitical tensions, which could mark a return to inflationary pressures,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence.
“While domestic macroeconomic indicators have improved significantly, particularly inflation and the external account, we believe the central bank is likely to adopt a wait-and-see approach in light of emerging global risks and domestic policy adjustments,” Arif Habib Limited (AHL), a brokerage house, said in its report.
Analysts at Topline Securities also believed that the central bank’s MPC would observe a status quo as international crude oil prices have rebounded to US$68-70/barrel amidst rising tensions in the Middle East region and an expected US-China deal.
