Fajar Rehman
The State Bank of Pakistan has decided, once again, that prudence beats haste. In its latest Monetary Policy Committee meeting, the central bank chose to keep the policy rate unchanged at 11.5 percent, opting to navigate the present moment with care rather than risk a misstep in still-treacherous economic waters. On the surface, this looks like a bank reluctant to move. Look closer, and the picture changes entirely.
Eleven and a half percent remains a high rate by any historical measure, and businesses across the country continue to feel its weight. But context matters here. Since June 2024, the State Bank has slashed the policy rate by a cumulative 1,150 basis points, one of the steepest easing cycles the country has seen in recent memory. This is not an institution that flinches at the idea of aggressive monetary easing. Quite the opposite: when conditions have justified it, the bank has moved decisively and repeatedly. The current pause, then, should be read less as timidity and more as a deliberate breath taken before the next step.
That next step may come sooner than many expect. With the Iran conflict now appearing to have reached resolution, there is a reasonable chance the central bank will revisit the question of a rate cut at its next sitting, provided the data on both the domestic and global fronts cooperates. Much will depend on how quickly the local economy, and indeed the wider region, manages to shake off the disruption the war inflicted.
It is worth remembering where things stood before the fighting began in late February. At that point, Pakistan’s economy had settled into a rhythm of steady growth paired with falling inflation, a combination rare enough that economic commentators had grown almost unanimous in predicting further rate cuts ahead. The momentum was real, and the optimism was earned. Then the conflict broke out, and within weeks much of that progress had been undone. Households that had begun to feel some relief found themselves worse off than before the war started, a reversal as sudden as it was unwelcome.
Headline inflation has since climbed back into double digits, pushed upward chiefly by rising energy costs and a spike in wheat prices, two pressures that tend to hit ordinary consumers hardest and fastest. Compounding the problem, the supply chain disruptions triggered by the conflict have proven stubborn. These will take several months, not weeks, to work themselves out of the system. Until global trade routes and input markets settle back into something resembling normal, inflationary pressure will likely persist not just in Pakistan but across much of the world.
There is a silver lining buried in the oil market, though it has yet to reach ordinary consumers. Global crude prices have begun easing, but that relief has not translated into lower prices at the pump just yet. The government, to its credit, has resisted the temptation to make abrupt, vote-seeking adjustments to fuel pricing, choosing instead a more measured approach. This restraint matters more than it might appear. Pakistan’s underlying economic fundamentals, despite the shock of recent months, remain healthier than they were a few years ago. That improvement means the door to recovery has not been shut. With a measure of luck and continued discipline, the various pieces of the puzzle, fiscal management, monetary policy, and external stability, could still fall into place.
None of this, however, offers much comfort to the investors and business owners who have spent months voicing frustration over the cost of working capital. High borrowing costs continue to squeeze margins, blunt competitiveness, and discourage the kind of new investment the economy badly needs to generate jobs and broaden its tax base. The State Bank’s caution is understandable given the inflationary risks still in play, but understanding a decision does not make its consequences any easier for businesses trying to plan ahead.
The road forward is narrow, and the obstacles are not minor. Volatile commodity prices remain a persistent threat, pending tariff adjustments could reshape costs overnight, fiscal slippages continue to loom over budget targets, and weather-related risks to the food supply add yet another layer of uncertainty. Taken together, these factors create an environment where caution alone will not be enough. Smart, well-targeted investment, both public and private, may be the only realistic path out of this period of strain. The central bank has bought itself time with this pause. What the country does with that time will determine whether the next rate decision brings relief or merely a continuation of the wait.
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