The State Bank of Pakistan (SBP) is expected to maintain its key policy rate at the upcoming monetary policy review on Monday, according to a Reuters poll, as higher global energy prices and regional tensions complicate the inflation outlook and reduce the scope for further rate cuts.
All 10 analysts surveyed by Reuters forecast that the central bank will keep the benchmark interest rate unchanged at 10.5%, the same level maintained during the January policy meeting.
Since mid-2024, the central bank has lowered the policy rate by a cumulative 11.5 percentage points from its historic peak of 22%.
However, escalating tensions in the Middle East following attacks by the US and Israel on Iran have raised concerns about potential disruptions to shipping through the Strait of Hormuz. This development has pushed global oil and gas prices higher, increasing Pakistan’s import costs and adding pressure to domestic inflation.
Analysts expect inflation to average between 6% and 8% in the coming months but caution that rising oil prices could push it even higher.
“Energy prices should dictate the policy rate trajectory. Inflation could average around 7% during the second half of FY26,” AKD Securities analyst Muhammad Aliv said.
Pakistan’s strong dependence on imported fuel makes its economy particularly vulnerable to fluctuations in global energy prices.
“Higher oil prices widen the trade deficit and pressure the rupee,” Waqas Ghani, head of research at JS Capital, said.
According to Ghani, every $10 per barrel increase in crude oil prices adds roughly 0.5 percentage points to inflation, which rose to 7% in February compared with 5.8% in January.
The SBP has said it intends to maintain a positive real interest rate to help anchor inflation expectations under Pakistan’s $7 billion programme with the International Monetary Fund (IMF). However, inflation may temporarily exceed the central bank’s target range of 5%–7% for a few months this year as economic growth strengthens and rising imports widen the trade deficit.
Last month, SBP Governor Jameel Ahmad told Reuters that policymakers remain focused on maintaining medium-term price stability. The economy is projected to grow between 3.75% and 4.75% in the fiscal year 2026, supported by stronger domestic demand and earlier monetary easing.
Analysts say external risks—including higher oil prices, pressure on the rupee, and a widening trade deficit—could delay any further moves toward monetary policy easing.
