Rate decision in focus as SBP weighs inflation risks against external stability

Pakistan’s central bank will convene its Monetary Policy Committee on April 27, with analysts divided over whether rising inflation and oil price volatility warrant a shift from the current easing trajectory.

A majority of economists surveyed expect the State Bank of Pakistan to keep the benchmark policy rate unchanged at 10.5%, arguing that recent price pressures are largely supply-driven and may prove temporary.

According to the poll, six of ten analysts forecast no change in the policy rate, while three anticipate a 50-basis-point increase and one expects a steeper 100-basis-point hike, marking a potential return to tightening not seen since before the rate-cut cycle began in mid-2024.

The central bank has reduced borrowing costs by a cumulative 1,150 basis points since June 2024, when the policy rate peaked at a record 22%, as inflation eased and macroeconomic conditions stabilised. The most recent adjustment came in January, when the rate was lowered by 50 basis points.

Recent inflation data has complicated the outlook. Consumer prices rose 7.3% year-on-year in March, up from 7% in February, exceeding the central bank’s target range of 5% to 7%, with some analysts warning inflation could move closer to 10% by April if energy costs remain elevated.

Global oil market uncertainty linked to the Iran–United States conflict has kept Pakistan’s import bill under pressure, even after a ceasefire reduced immediate tensions. The lack of a lasting peace agreement has sustained volatility in energy markets, feeding into domestic inflation risks.

Still, analysts favouring a pause point to improving external indicators. Pakistan recorded a $1.07 billion current account surplus in March, while the rupee has remained broadly stable, factors seen as supporting a cautious wait-and-see approach.

Others argue that financial markets have already priced in a modest increase in interest rates, suggesting the central bank could opt for a precautionary hike if inflation risks intensify in the coming months.

The central bank has maintained that monetary policy decisions will aim to preserve a positive real interest rate under Pakistan’s ongoing programme with the International Monetary Fund, which has previously cautioned against premature monetary easing.