State Bank of Pakistan Maintains Interest Rate at 11% Amid Iran-Israel Conflict Inflation Risks

The State Bank of Pakistan (SBP) has maintained its key policy interest rate at 11 percent amid concerns over inflation risks linked to rising global commodity prices, particularly due to the escalating Iran-Israel conflict. Despite earlier expectations for a rate cut, the SBP's Monetary Policy Committee (MPC) opted to hold the rate steady to support macroeconomic and price stability, noting that inflation increased moderately but remains within target ranges. The SBP highlighted gradual economic recovery with real GDP growth estimated at 2.7 percent for fiscal year 2025, driven by gains in the industrial and services sectors, though agriculture faced challenges. The MPC also warned of external risks including a widening trade deficit, subdued financial inflows, and potential increased import demand from upcoming budget measures. Remittances and a nearly balanced current account provided some support to the external sector, but the central bank remains cautious given geopolitical uncertainties and their impact on commodity prices. The next policy review is scheduled for August 2025, with the committee closely monitoring economic developments.