SBP seen holding rates steady as the oil rally clouds inflation outlook

KARACHI: The State Bank of Pakistan (SBP) ​is expected to hold its key policy rate steady at a policy ‌review on Monday, a Reuters poll showed, as rising global energy prices and regional tensions cloud the inflation outlook and limit the room for cuts.

All 10 analysts in a Reuters poll expect the SBP to hold the rate at 10.5%, after policymakers held the rate ​in January.

The central bank has cut the key rate by a cumulative ⁠11.5 percentage points since mid-2024, from a record high of 22%.

Escalating Middle East tensions ​after the US and Israel attacked Iran have raised the risk of disruption to shipping ​through the Strait of Hormuz and pushed oil-and-gas prices higher, adding to Pakistan’s import bill and inflationary pressures.

Analysts expect inflation to average 6%–8% in the coming months, but warned that higher oil prices could push it up ​further.

“Energy prices should dictate the policy rate trajectory. Inflation could average around 7% during ​the second half of FY26,” AKD Securities analyst Muhammad Aliv said.

Pakistan’s heavy reliance on imported fuel leaves ‌it ⁠vulnerable to global price shocks.

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“Higher oil prices widen the trade deficit and pressure the rupee,” Waqas Ghani, head of research at JS Capital, said.

Ghani said every $10 per barrel increase in crude prices adds about 0.5 percentage points to inflation, which clocked in at 7% in ​February, jumping from 5.8% ​in January.

The SBP ⁠says it aims to maintain a positive real interest rate to anchor inflation expectations under Pakistan’s $7 billion IMF programme, though inflation could ​exceed its 5%–7% target range for a few months this year ​as growth ⁠picks up and imports widen the trade deficit.

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Governor Jameel Ahmad told Reuters last month that policymakers remained focused on medium-term price stability, even as the economy was projected to grow 3.75%–4.75% in ⁠the financial ​year 2026, supported by stronger domestic demand and ​earlier monetary easing.

Analysts said external risks, including higher oil prices, rupee pressure and a widening trade deficit, could delay ​any move toward further monetary easing.