FX.co ★ Pakistan Holds Key Rate Steady at 11%

The State Bank of Pakistan opted to maintain its benchmark interest rate at 11% during its June meeting, aligning with market forecasts. This decision followed an unexpected 100 basis point reduction in May. The context for this action includes the persistent conflict between Israel and Iran, as well as fluctuating global oil prices, both contributing to potential inflationary pressures. In its announcement, the bank's Monetary Policy Committee (MPC) highlighted the likelihood of short-term inflation fluctuations, predicting a gradual increase that would stabilize within the target range of 5–7%. Nonetheless, the MPC acknowledged that this outlook is vulnerable to a range of risks, including supply-chain interruptions due to regional geopolitical tensions, the unpredictability of oil and other commodity prices, and the timing and scale of adjustments to domestic energy prices. Headline inflation surged to a five-month peak of 3.5% in May, a substantial rise from the near six-decade low of 0.3% recorded in April, surpassing the finance ministry's forecast of 1.5%–2%.