Pakistan’s central bank kept its benchmark interest rate steady at 11 per cent on Monday, aligning with market expectations amid growing inflationary risks from the Israel-Iran conflict and fluctuating global oil prices.

After slashing rates by 1,100 basis points from a record 22 per cent since June 2024, including a 100-basis-point cut in May, the State Bank of Pakistan (SBP) opted to pause its easing cycle again. The decision, supported by most analysts surveyed by Reuters, reflects concerns over rising inflation pressures stemming from geopolitical tensions and global commodity volatility.

The SBP’s Monetary Policy Committee (MPC) said it anticipates short-term inflation fluctuations but expects prices to gradually settle within the 5–7 per cent target range. However, it warned of risks from potential supply chain disruptions, volatile energy markets, and upcoming domestic energy price adjustments.

Headline inflation rose to 3.5 per cent in May, surpassing the finance ministry’s projection of up to 2per cent. For the fiscal year ending this month, the central bank expects average inflation between 5.5 per cent and 7.5 per cent.

Mustafa Pasha of Lakson Investments noted that with oil prices surging nearly 15 per cent, holding the rate was a prudent move to allow time to evaluate the impact of the new budget and upcoming energy tariff hikes.

The rate decision follows Pakistan’s contractionary federal budget, which trimmed spending by 7 per cent and set a GDP growth target of 4.2 per cent for FY 2025–26. The government maintains that the economy, worth USD 350 billion, is stabilising under a USD 7 billion IMF programme, although analysts remain cautious about persistent fiscal and external vulnerabilities.