SBP keeps policy rate unchanged at 11.5% amid geopolitical turmoil and flood fears

KARACHI:  In its first meeting of the fiscal year 2026-27, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to hold the key interest rate steady at 11.5%, maintaining the status quo for the second consecutive month.

The decision, announced on Monday, reflects a cautious central bank navigating a complex landscape of improving domestic fundamentals against a backdrop of escalating international crises.

While domestic economic indicators show signs of stabilization, analysts point to a volatile global environment as the primary factor behind the SBP’s decision to pause. Escalating geopolitical tensions in the Middle East, particularly the intensifying US-Iran conflict, and the associated risks of surging oil prices are overshadowing the arguments for monetary easing.

In a research note, AKD Securities highlighted the dichotomy facing policymakers. On one hand, Pakistan’s external account remains comfortable, supported by a tight monetary policy, prudent fiscal management, an improving credit rating, and continued progress on structural reforms. These factors are viewed as positive indicators of economic resilience.

However, the brokerage firm also noted weakening leading economic indicators and a contraction in money supply, which together strengthen the case for a supportive, accommodative monetary policy to stimulate growth.

“The renewed geopolitical tensions following the escalation of the US-Iran conflict, including the re-closure of the Strait of Hormuz and Houthi threats of a naval blockade targeting Saudi Arabia, have heightened uncertainty significantly,” AKD Securities stated in its report.

This global uncertainty is compounded by a domestic threat: weather forecasters are predicting severe floods during the last week of this month. The combination of potential supply chain disruptions from geopolitical strife, volatile energy prices, and the risk of agricultural devastation from flooding has renewed concerns over inflationary pressures, compelling the central bank to maintain its cautious approach for the time being.