Pakistan’s central bank, the State Bank of Pakistan (SBP), is widely expected to maintain its benchmark policy rate at 10.5% in the upcoming Monetary Policy Committee (MPC) meeting scheduled for March 9, 2026. This follows a Reuters poll where all 10 surveyed analysts predicted no change, amid rising global oil prices and geopolitical tensions clouding the inflation outlook.
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Inflation Rebound in February Headline consumer price index (CPI) inflation climbed to 7% year-on-year in February 2026, up from 5.8% in January, marking the highest level since October 2024 according to Pakistan Bureau of Statistics data. This uptick reflects pressures from food, energy, and other costs, with urban inflation at 6.8% and rural at 7.3%.
Oil Rally and Geopolitical Risks Escalating Middle East tensions, including recent US and Israeli actions against Iran, have driven up global crude prices and raised concerns over potential disruptions in the Strait of Hormuz.
Pakistan, heavily reliant on imported fuel, faces heightened vulnerability. Analysts estimate that every $10 per barrel increase in oil adds roughly 0.5 percentage points to inflation, widening the trade deficit and pressuring the rupee.
Reasons for Rate Hold The expected pause aims to keep real interest rates positive and anchor inflation expectations, especially under the ongoing $7 billion IMF program. The SBP has already delivered cumulative cuts of 11.5 percentage points since mid-2024 (from a peak of 22%), supporting economic recovery.
However, external risks—including higher energy costs, rupee depreciation potential, and a widening trade deficit—limit further easing room.
Economic Context and Outlook Growth is projected at 3.75%–4.75% for fiscal year 2026, bolstered by stronger domestic demand from prior easing. Inflation may average 6%–8% in coming months and hover around 7% in the second half of FY26, potentially exceeding the 5%–7% target range temporarily. Economists note that sustained high oil prices could delay additional rate reductions.
Analyst Perspectives Muhammad Ali, an analyst at AKD Securities, stated: “Energy prices should dictate the policy rate trajectory. Inflation could average around 7% during the second half of FY26.” Waqas Ghani of JS Capital added that higher oil widens the trade deficit and pressures the rupee, reinforcing caution.
Broader Implications The decision underscores the SBP’s focus on medium-term price stability amid global uncertainties. While earlier easing aided recovery, current dynamics suggest a cautious stance to safeguard gains and comply with IMF commitments. Markets await the March 9 announcement for clearer signals on future policy direction.