Pakistan’s central bank could move to raise interest rates again if inflation begins to climb, with the International Monetary Fund indicating that policymakers should remain ready to respond to changing economic conditions.
Following recent discussions with authorities, the IMF backed the current approach of the State Bank of Pakistan, saying policy decisions should continue to rely on incoming data rather than fixed assumptions.
The Fund warned that external developments may quickly reverse the recent easing in inflation. Rising global food and energy costs, along with ongoing geopolitical tensions, could push prices higher and shape public expectations about future inflation.
In this situation, the IMF suggested that maintaining a firm policy stance would help keep inflation under control, while leaving room for action if conditions worsen.
Currency flexibility seen as key buffer
The IMF also highlighted the role of the exchange rate in managing economic shocks. Allowing the currency to move freely, it said, can help soften the impact of global pressures, including spillovers from regional conflicts and tighter financial conditions worldwide.
At the same time, the Fund pointed to the importance of a stable banking sector. A resilient financial system would ensure that Pakistan can continue to finance imports and meet external obligations even if pressure builds on its external position.
Recovery under watch amid global uncertainty
Recent trends suggest some improvement in Pakistan’s economy, with inflation slowing and external accounts showing signs of stability. However, the IMF noted that the outlook remains uncertain.
Fluctuations in commodity prices and unpredictable global conditions continue to pose risks. As a result, the central bank is expected to take a cautious path, balancing efforts to keep inflation in check while supporting the ongoing economic recovery.
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