SBP expected to keep policy rate unchanged as oil prices rise

The State Bank of Pakistan (SBP) is anticipated to maintain its key policy rate at 10.5 percent during its upcoming policy review on Monday, familiar with the matter. This expectation follows a Reuters poll in which all 10 analysts surveyed predicted that the central bank would hold the rate steady, citing ongoing uncertainties in global energy markets and regional tensions.

Since mid-2024, the SBP has reduced its key policy rate by a total of 11.5 percentage points from a previous record high of 22 percent. The last policy meeting in January also saw the rate held at 10.5 percent. However, recent developments in the Middle East, particularly after the United States and Israel conducted attacks on Iran, have heightened concerns about potential disruptions to shipping through the Strait of Hormuz. This has led to an increase in global oil and gas prices, which in turn is expected to impact Pakistan’s import costs and inflation outlook.

Analysts cited that inflation in Pakistan could average between 6 percent and 8 percent in the coming months. However, they caution that a further rise in oil prices may push inflation higher than these estimates. One analyst noted, “Energy prices should dictate the policy rate trajectory. Inflation could average around 7 percent during the second half of the year.”

The central bank’s decision to hold the rate is influenced by these external pressures, as higher energy costs limit the scope for additional rate cuts. The situation remains fluid, with policymakers closely monitoring global developments and their potential impact on Pakistan’s economy.