The State Bank of Pakistan (SBP) decided to keep its benchmark interest rate steady at 11.50 percent on Monday, adopting a cautious approach in the final monetary policy review of the fiscal year. This move reflects the central bank’s effort to balance easing geopolitical tensions with persistent volatility in global oil prices.
The Monetary Policy Committee (MPC) of the SBP opted to maintain the policy rate for the next six weeks, following a 100-basis-point increase at its previous meeting on April 27, which raised the borrowing cost to the current level.
In its monetary policy statement, the SBP explained that the decision to hold the rate was influenced by the prevailing economic conditions and ongoing uncertainties in international markets. Notably, the bank highlighted that improved prospects for peace in the Middle East have significantly eased concerns over a prolonged regional conflict, contributing to the stabilization of disrupted global supply chains over the past month.
However, the committee stressed that a cautious stance remains essential, as fluctuations in crude oil prices continue to pose a significant risk to domestic inflation. Consequently, inflationary pressures have not been fully alleviated.
The central bank’s conservative approach was largely in line with market expectations. Analysts and financial sector participants observed that while the rationale for further rate hikes diminished due to stabilizing global commodity prices, the current macroeconomic environment does not yet support a reduction in rates.
Faisal Mamsa, CEO of financial terminal Tresmark, noted prior to the announcement that the MPC needed to carefully evaluate multiple factors, including currency stability and the external account, before making a decision on interest rates.
This pause concludes a challenging fiscal year 2025-26, during which the SBP had to make aggressive monetary adjustments to protect the domestic currency and mitigate external supply shocks triggered by the Gulf conflict.
Looking ahead, the SBP indicated that its future policy decisions will be data-driven, with close monitoring of consumer price indices, global energy developments, and overall macroeconomic stability. The next policy review is scheduled for late July.
