Pakistan’s central bank has decided to maintain its benchmark interest rate at 11%, citing ongoing inflationary pressures fueled by volatile global oil prices and regional geopolitical tensions.
The State Bank of Pakistan (SBP) kept the rate unchanged after a substantial easing cycle that saw a total reduction of 1,100 basis points since June 2024, including a 100-basis-point cut in the previous month. This move aligned closely with market expectations and was supported by the majority of analysts surveyed by Reuters.
The SBP’s Monetary Policy Committee highlighted that while inflation is expected to fluctuate in the short term, it anticipates it will ultimately settle within the medium-term target range of 5 to 7 percent. However, the committee warned of risks stemming from supply chain disruptions, energy market instability, and upcoming adjustments in domestic utility tariffs.
In May, Pakistan’s headline inflation rose to 3.5%, surpassing the finance ministry’s forecast of up to 2%. For the fiscal year ending in June, the central bank projects average inflation to range between 5.5 and 7.5 percent.
It observed that the decision to pause monetary easing coincides with the government’s recently unveiled contractionary federal budget for fiscal year 2025–26. The budget plans to reduce public spending by 7 percent and targets economic growth of 4.2 percent, as Pakistan strives to comply with the conditions of its ongoing USD 7 billion loan agreement with the International Monetary Fund (IMF).
Mustafa Pasha, Chief Investment Officer at Lakson Investments, commented that with oil prices having surged nearly 15 percent in recent weeks, maintaining the current interest rate is a prudent measure. He added that this approach allows policymakers time to evaluate the impact of fiscal adjustments and upcoming energy tariff hikes on inflation trends.
While the government maintains that Pakistan’s $350 billion economy is showing signs of stabilization, analysts remain cautious. They highlight persistent structural fiscal challenges and vulnerabilities in the external sector, particularly against the backdrop of global uncertainties and commodity price shocks driven by regional conflicts.
