Pakistan Holds Interest Rates Steady Amid Rising Energy Prices and Regional Tensions

In a strategic move aimed at stabilizing the economy, Pakistan's central bank has announced it will keep its key policy rate unchanged at 10.5% as of Monday. The pause comes as rising global energy prices and regional tensions pose fresh risks to the inflation rate of the import-reliant nation.

The State Bank of Pakistan (SBP) confirmed its decision on its website, emphasizing that a comprehensive statement would be forthcoming. Since mid-2024, the bank had reduced the rate by 1,150 basis points, following a record high of 22% in 2023, due to sharply cooling inflation.

Escalating tensions in the Middle East are causing anxiety over potential disruptions to oil shipping routes, notably the Strait of Hormuz, resulting in increased energy prices. With Pakistan heavily dependent on energy imports, any variations in global fuel costs ripple through to domestic inflation. This monetary strategy is part of ongoing measures within a $7 billion IMF program, which emphasizes the importance of a tight and calculative monetary policy.