The State Bank of Pakistan (SBP) decided to keep its policy rate unchanged at 11% on Monday, amid concerns that rising global commodity prices could add inflationary pressures due to ongoing tensions between Iran and Israel.
The SBP had previously reduced the policy rate by 1,000 basis points in seven intervals since June 2024, bringing it down from 22% to 11% last month. While many analysts had anticipated a rate cut, their forecasts shifted after the recent escalation in the Middle East, which has sparked fears of a broader conflict.
The escalation, triggered by Israeli airstrikes on Iran on Friday, has caused oil prices to surge, which could lead to higher import costs for Pakistan. This, combined with the risk of further geopolitical instability, has raised concerns about the potential impact on inflation and the supply of crude oil.
In a recent Reuters poll, 11 out of 14 respondents expected the SBP to maintain its rate at 12%, while two predicted a 100 basis-point cut and one expected a 50-basis point reduction. Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, highlighted that the geopolitical situation poses an upside risk to global commodity prices, potentially reigniting inflationary pressures.
