Market participants are widely expecting the State Bank of Pakistan to leave its key interest rate unchanged at 10.5 percent in the upcoming Monetary Policy Committee meeting scheduled for Monday, as policymakers weigh external risks and a still-manageable inflation outlook.
A report by Arif Habib Limited said the current environment calls for a measured approach, with global developments continuing to create uncertainty.
The brokerage noted that ongoing tensions involving the US and Iran have kept financial markets on edge, particularly through their impact on oil prices.
According to the report, fluctuations in global oil markets have been sharp enough to influence sentiment but not consistent enough to establish a clear direction. These external pressures have filtered into Pakistan’s domestic prices, though the broader inflation trend has remained relatively stable so far.
Transport costs have seen noticeable increases in recent months, with prices rising by around 12 percent in March and expected to climb further in April. Despite this, analysts believe the impact has not spread widely across the economy, and there is little sign of sustained inflationary pressure building up.
Inflation outlook remains manageable
Looking ahead, inflation is expected to pick up temporarily toward the end of the fiscal year, mainly due to base effects and energy-related adjustments. However, this rise is seen as short term rather than a sign of overheating demand.
Estimates suggest inflation could average around 7.1 percent in FY26 and 8.5 percent in FY27, while core inflation is likely to stay close to 8 percent. Analysts say this supports the case for keeping borrowing costs unchanged for now.
According to Business Recorder, the central bank had also maintained the policy rate at 10.5 percent in its previous meeting, a move that aligned with market expectations at the time. Rising geopolitical tensions and concerns over energy prices had already made a strong case for caution.
A recent survey conducted by the brokerage showed that a majority of respondents, about 61 percent, expect no change in the upcoming decision. Meanwhile, 19 percent anticipate a 50 basis points increase, 17 percent expect a 100 basis points hike, and a small fraction see the possibility of a larger increase.
Analysts believe the central bank may prefer to wait for more clarity on both global developments and the domestic fiscal situation before making any major adjustments.
The policy review expected in June, alongside the federal budget, is likely to provide a clearer direction for future decisions.
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