KARACHI: In a move driven more by external volatility than domestic economic signals, the State Bank of Pakistan (SBP) on Monday held its benchmark policy rate steady at 11 percent, signaling caution amid rising global uncertainty following renewed hostilities between Israel and Iran.
The decision comes after the central bank had aggressively cut the interest rate by a cumulative 1,100 basis points from a peak of 22 percent since June 2024, reflecting a shift toward monetary easing to support domestic economic recovery. However, the latest escalation in Middle East tensions—particularly the Israeli strikes on Iran—has injected fresh concerns into global markets, particularly over the stability of oil prices.
Analysts say the SBP’s pause reflects fears of imported inflation returning through higher energy costs, should the regional conflict deepen and disrupt global crude supply chains.
“The central bank is clearly signaling a wait-and-watch mode in response to rising geopolitical risk,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence. “There remains an upside risk of a surge in global commodity prices, especially oil, which could reignite inflationary pressures in Pakistan.”
The price of Brent crude has surged in recent days, a worrying development for a heavily import-reliant country like Pakistan, where energy costs directly influence inflation and the current account balance.
A Reuters snap poll of 14 financial institutions showed 11 expected the SBP to keep the policy rate unchanged, while only three forecast further easing. The cautious sentiment marks a notable shift from earlier expectations of a continued rate-cutting cycle.
Although Pakistan’s inflation has shown signs of moderating and foreign exchange reserves have stabilized, economists warn that the external risk landscape—particularly disruptions in oil supply chains—could quickly offset recent gains.
“While the SBP has room to ease further given the decline in inflation, it has opted for prudence until the dust settles on the geopolitical front,” said one financial analyst.
The SBP’s next move is now expected to hinge on how global oil markets evolve and whether the conflict spreads beyond Iran and Israel, potentially drawing in larger powers and disrupting trade flows.
