Pakistan’s central bank is expected to keep its benchmark interest rate steady at 12 per cent when it meets on Monday, as geopolitical uncertainty and renewed inflation concerns cloud the outlook, according to a snap poll of analysts.
Eleven out of 14 respondents surveyed by Reuters said they expect the State Bank of Pakistan (SBP) to hold rates. The remaining three projected a cut—two anticipating a 100 basis-point reduction, and one predicting a 50 basis-point move.
Expectations for a rate cut had gained traction until Israel launched military strikes on Iran last week, targeting facilities it claims are linked to nuclear and missile development. The attack has heightened fears of a wider regional conflict, triggering a surge in global oil prices, a key risk for Pakistan, which heavily relies on energy imports.
“The geopolitical flare-up could push up global commodity prices, posing renewed upside risks to inflation,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence. “This could increase the import bill, weaken the currency, and hurt the external account.”
After peaking at around 40 per cent in May 2023, Pakistan’s inflation has gradually declined. But consumer prices unexpectedly rose to 3.5 per cent last month, above the finance ministry’s projection of up to 2 per cent, partly due to fading base effects. The SBP forecasts average inflation to remain between 5.5 per cent and 7.5 per cent for the fiscal year ending in June.
The central bank had begun easing in March, cutting rates by a total of 1,000 basis points from a record 22 per cent. It resumed the cycle in May with a 100 basis-point cut but may now pause again given the renewed inflationary pressure.
The policy decision comes days after Pakistan announced its federal budget, which includes a 20 per cent hike in defence spending. While overall expenditures have been trimmed by 7 per cent, the government has set a GDP growth target of 4.2 per cent for the upcoming year.
Pakistan’s economy, valued at around $350 billion, has shown signs of stabilisation after securing a $7 billion bailout from the International Monetary Fund. Still, some analysts question whether the government can hit its ambitious growth targets given fiscal constraints and external risks.
Abdul Azeem, head of research at Al Habib Capital Markets, is among the few still expecting a rate cut. “A modest reduction could help support the government’s growth ambitions and ease the burden of debt servicing,” he said.
