The central bank is expected to hold its policy rate on Monday, a Reuters' poll showed, as many analysts shifted their previous view of a cut in the wake of Israel's military strike on Iran, citing inflation risks from rising global commodity prices.
Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a "pre-emptive strike" to prevent Tehran from building an atomic weapon.
Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict. The escalating hostilities triggered a sharp spike in oil prices – a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.
Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 11%. Two forecast a 100-basis-point cut and one predicted a 50bps cut.
"There remains an upside risk of a rise in global commodity prices in light of geopolitical tensions, which could mark a return to inflationary pressures," said Ahmad Mobeen, Senior Economist at S&P Global Market Intelligence. "The resultant higher import bill could also threaten external sector performance and bring pressure to the exchange rate."
Inflation in Pakistan has been declining for several months after it soared to around 40% in May 2023. Last month, however, it picked up to 3.5%, above the finance ministry's projection of up to 2%, partly due to the fading of the year-go base effects. The SBP expects average inflation between 5.5% and 7.5% for the fiscal year ending June.
The central bank paused its easing cycle in March after cumulative cuts of 1,000 basis points from a record high of 22% and resumed it with a 100-basis-point reduction in May.
The policy meeting follows the release of a tight annual budget, which saw the government raise defence spending by 20% but overall expenditure was reduced by 7%, with GDP growth forecast at 4.2%.
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