The right pause

Monday's decision by the State Bank of Pakistan to hold its policy rate at 10.5 per cent was the kind of disciplined restraint that Pakistan's fragile economic recovery needs most right now. Coming off one of the most aggressive easing cycles in the central bank's history - a cumulative reduction of 1,150 basis points from a record 22 per cent since mid-2024 - voices in the business community had hoped for another cut.

On the surface, the numbers seemed to support their case that inflation had fallen sharply from multi-decade highs and a current account surplus materialised in January. Why not keep cutting? Because the skies over the Strait of Hormuz say otherwise. Pakistan imports the overwhelming majority of its energy needs, making domestic prices acutely sensitive to global fuel shocks. Brent crude is surging on geopolitical tensions, and last week's Rs55 per litre hike in petrol prices in the country - the largest single increase on record - was only the opening act. Inflation, which had been cooling so reassuringly, has already ticked back up to 7% in February. Broader constraints also argue for caution. Pakistan remains locked into a $7 billion IMF programme that explicitly demands tight, data-dependent monetary policy. With geopolitical risks elevated and supply chains disrupted, the MPC's job is to hold the line - and it did.

None of this signals a permanent end to easing. Should the regional conflict de-escalate and inflation stay anchored within the 5-7% band, carefully calibrated cuts remain plausible later in the year. Structural reforms remain the harder and more consequential work. Monetary policy is a lever, not a magic wand. Yesterday, at least, it was used wisely.