Pakistan holds key policy rate at 11.5 percent as US-Iran hostilities threaten to push up energy costs

KARACHI: Pakistan’s central bank held the key policy rate at 11.50 percent on Monday, the ​bank’s governor announced, as renewed US-Iran hostilities threaten to push energy costs and inflation higher in the import-dependent country.

The decision followed the collapse of a ceasefire agreement between ‌Washington and ‌Tehran, with ​the ‌two sides ⁠exchanging ​strikes over ⁠control of the Strait of Hormuz, a critical corridor for global oil shipments.

State Bank of Pakistan (SBP) Governor Jameel Ahmad said there will be some reduction in inflation ⁠in July, adding that he ‌hoped inflation ‌will start falling in ​the next ‌two months if the conflict does ‌not escalate.

“The Committee assessed that the macroeconomic outlook has improved from its previous meeting, though it remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East,” the SBP said, citing its governor.

“The Committee observed that the earlier de-escalation had led to a decline in global oil prices and a relative ease in supply chain disruptions, which resulted in some improvement in recent economic indicators. Headline and core inflation moderated in June, though both remained at elevated levels.”

At the same time, the SBP said, incoming high frequency indicators pointed to some pickup in economic activity, whereas external account pressures remained moderate.

“Taking into account these developments and evolving risks, the MPC assessed that the current monetary policy stance remains appropriate to guide inflation toward the target range of 5-7 percent over the medium term,” the central bank said.

The SBP has raised the policy rate once this year by 100 basis points to 11.5 percent in ‌April after holding ⁠rates ⁠steady since October 2025.

That move followed a cumulative 1,150-basis-points reduction from a record high of 22 percent in June 2024, as the bank eased aggressively once inflation came under control.

Monday’s decision to hold rates follows a similar decision to keep it at 11.5 percent ​at the ​June meeting as well.