ISLAMABAD: Pakistan’s central bank has maintained its key policy rate at 11.50 percent, its said on Monday, following the announcement of a US-Iran peace deal that was expected to ease pressure on the country’s external account and cool energy prices.
Global oil prices tumbled toward $80 a barrel and stocks climbed after the US-Iran deal to end their war and reopen the Strait of Hormuz, through which roughly 20 percent of the world’s crude oil supply normally transits. Iran closed the strait after US-Israeli in late February, sending energy prices soaring.
The Monetary Policy Committee (MPC) of the central bank noted while oil prices have eased following the recent developments, they remain elevated as compared to pre-conflict levels and the impact of the conflict is now reflecting in recent economic indicators.
Headline inflation rose to double digits in April and May, while core inflation also edged up, according to the committee. Economic activity is showing some signs of moderation, reflecting the impact of elevated prices, austerity measures and prevalent uncertainty, while external account pressures remain moderate.
“While evaluating the impact of these unfolding developments and risks, the MPC observed that the macroeconomic outlook is broadly unchanged from its previous meeting,” the State Bank of Pakistan (SBP) said.
“In this context, 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.”
Ahsan Mehanti, chief executive officer at Arif Habib Commodities, told Arab News the MPC decided to keep the policy rate unchanged at 11.5 percent, weighing the US-Iran peace deal, pro-growth federal budget, focused fiscal measures.
“Fall in global crude prices will end inflationary trend and [is] expected to ease policy rates [in future],” he said.
The statement came as the Pakistan Stock Exchange (PSX) concluded Monday’s trading session on a buoyant note, surging 4,639 points (+2.69 percent) to close at 177,039 points.
A broad “all is well” sentiment prevailed at the market as participants welcomed the government’s reform-oriented budget measures and responded positively to reports of the preliminary US-Iran peace agreement, according to a market review by Topline Securities brokerage firm.
It reflected “strong investor conviction and broad-based market engagement across the board,” the firm said.
Since the last MPC meeting in April, broad money (M2) growth moderated to 14.3 percent y/y as of May 29, 2026, from 14.5 percent on April 10, 2026. Headline inflation rose sharply from 7.3 percent in March to 10.9 percent y/y in April and 11.7 percent in May, according to the central bank.
Real gross domestic product (GDP) grew by 3.7 percent in the outgoing fiscal year, up from 3.2 percent in FY25. Large-scale manufacturing posted a strong growth of 6.5 percent during July-March FY26, though it is expected to moderate in Q4-FY26, according to the provisional official estimates.
On the financing side, increase in official inflows provided critical support in meeting external obligations. These developments have facilitated ongoing FX purchases and buildup in SBP’s FX reserves, which are projected to reach $18 billion by end-June 2026.
“The MPC noted that proactive macroeconomic management, underpinned by forward-looking monetary policy and consistent fiscal consolidation, has helped sustain ongoing macroeconomic stability despite the prolonged Middle East conflict,” the SBP said.
“The MPC remains committed to achieving its objective of price stability and will closely monitor incoming data and evolving developments.”
