The State Bank of Pakistan (SBP) maintained its policy rate on Monday at 11 per cent, after many analysts cited inflation risks from rising global commodity prices amid Iran-Israel tensions.<\/p>\n
The central bank\u2019s policy rate, after being slashed by 1,000bps from 22pc since June 2024 in seven intervals, was cut to 11pc<\/a> last month.<\/p>\n \u201cThe Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 per cent,\u201d the SBP said in a statement<\/a>.<\/p>\n Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict.<\/p>\n<\/p>\n The MPC observed that global oil prices had \u201crebounded sharply, reflecting the evolving geopolitical situation in the Middle East and some ease in US-China trade tensions\u201d.<\/p>\n \u201cTaking 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\u20137pc,\u201d the MPC stressed.<\/p>\n The escalating hostilities after Israel\u2019s attacks on Iran on Friday had triggered a sharp spike in oil prices \u2014 a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.<\/p>\n 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.<\/p>\n Inflation expected to \u2018trend up and stablise\u2019 in 5-7pc target range<\/p>\n On inflation, the MPC noted that the recent uptick in May to 3.5pc<\/a> year-on-year was in line with its expectation, whereas core inflation declined \u201cmarginally\u201d.<\/p>\n The headline inflation had hit an all-time low<\/a> of 0.3pc YoY after declining for several months from around 40pc<\/a> in May 2023.<\/p>\n<\/p>\n The MPC said inflation was expected to \u201ctrend up and stabilise\u201d 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.<\/p>\n \u201cThis 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,\u201d the committee added.<\/p>\n It noted that economic growth was picking up gradually and was projected to gain further traction next year on the back of earlier rate cuts. However, the MPC cautioned about \u201csome potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows\u201d.<\/p>\n It observed that some of the proposed FY26 budgetary measures<\/a> may further widen the trade deficit by increasing imports, adding that the decision to maintain the interest rate was \u201cappropriate to sustain the macroeconomic and price stability\u201d.<\/p>\n