FX.co ★ Pakistan Keeps Policy Rate Steady at 10.5%

The State Bank of Pakistan left its benchmark policy rate unchanged at 10.5% in March, as widely anticipated, extending the pause in its monetary easing cycle. Policymakers pointed to heightened economic uncertainty, driven in part by surging oil prices amid escalating tensions in the Middle East. Pakistan remains especially exposed to higher energy costs because of its heavy dependence on imported fuel. A prolonged energy shock could also weigh on the rupee and complicate the country’s commitments under its IMF-supported stabilization program. Analysts caution that the recent fuel price hike could push inflation to around 9.25% in the second quarter, after headline inflation climbed to 7% in February, its highest level since October 2024. At the same time, the government’s 4.2% GDP growth target for the fiscal year ending in July is becoming increasingly difficult to achieve, given the combined impact of the Middle East crisis, severe monsoon floods that displaced roughly three million people, and supply-chain disruptions stemming from clashes with Afghanistan.