The remarks came a day after the State Bank of Pakistan’s (SBP) Monetary Policy Committee kept the policy rate unchanged at 11.5%, citing heightened external risks following the resurgence of conflict in the Middle East.

Addressing a press conference after the meeting of MPC, SBP Governor Jameel Ahmad said that proactive macroeconomic management, underpinned by a prudent monetary policy stance and sustained fiscal consolidation, has helped effectively manage the ongoing supply shock and preserve macroeconomic stability, despite a challenging global environment.

Commenting on this latest monetary policy announcement by the central bank, Ahmad Mobeen, Principal Economist at S&P Global Market Intelligence, said, “SBP’s decision to keep the policy rate unchanged comes amid a more stable macroeconomic backdrop, supported by easing near-term external pressures and a recovery in activity indicators and sentiment surveys.

“However, the policy stance is likely to remain cautious going forward, as inflation remains above the central bank’s target range, while risks from renewed Middle East tensions, volatile commodity prices, and especially the prospect of a severe El Niño shock continue to weigh on the outlook.

“External buffers are improving as well, but repayment pressures and reliance on official inflows and rollovers mean policy discipline will remain critical.”

S&P Global Market Intelligence projects Pakistan’s real GDP growth at 3.5% in fiscal year 2027, supported by improving economic fundamentals. However, the outlook continues to face downside risks from commodity price volatility and the potential impact of a severe El Niño weather event.

The firm also expects Pakistan’s external position to strengthen further, supported by robust remittance inflows and planned official financing.

Meanwhile, foreign exchange reserves are projected to reach $19.5 billion by the end of December 2026, while the current account deficit is forecast at 0.7% of GDP in calendar year 2026 and 0.9% of GDP in calendar year 2027.

The MPC met for the fifth time this calendar year. The decision was in line with market expectations.

In a press briefing, the SBP Governor Jameel Ahmad said that CPI inflation is expected to decline in July. “We expect the CPI to clock in at the upper band of our target range of 5-7% by the end of this fiscal year,” said Ahmad.

In its statement, the SBP said that 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.

“Meanwhile, 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, 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 towards the target range of 5-7% over the medium term,” it said.

The SBP noted the following key developments since its last meeting.

“First, SBP’s FX reserves surpassed the end-June 2026 target of $18 billion, largely due to continued FX purchases amidst a small current account deficit in FY26, and realisation of planned official inflows.

“Second, Pakistan’s sovereign credit rating was upgraded to “B” by Standard & Poor’s.

“Third, inflation expectations eased for both consumers and businesses in the latest sentiment surveys, while confidence indicators showed a mixed picture.

“Fourth, FBR met its revised tax revenue target for FY26.

“Lastly, the IMF increased its global inflation forecast for both CY26 and CY27 in the latest World Economic Outlook amidst an increase in global commodity prices,” the MPC said.

GDP & C/A

The MPC expects real GDP growth to be in the range of 3.5–4.5% during FY27.

“However, the risks emanating from volatile global commodity prices amidst re-escalation of tension in the Middle East and uncertain weather conditions, including from the evolving El Niño effects, may weigh on the growth prospects,” it said.

Meanwhile, the SBP expects the current account deficit to widen in line with the pickup in economic activity, though it is assessed to remain in the range of 0 to 1 percent of GDP in FY27.

“Workers’ remittances are likely to grow as compared to last year and continue financing a large part of the higher projected trade deficit. With the realisation of planned official inflows and some likely improvement in private flows, SBP’s FX reserves are targeted to increase to $20.20 billion by end-December 2026,” it said.

Inflation Outlook

Going forward, the MPC noted that the recent increase in global commodity prices, higher input costs and domestic food price pressures are likely to keep inflation above the target range over the next few months.

“Inflation is subsequently projected to ease gradually and stabilise near the upper bound of the 5-7% target range by June 2027.

“This outlook is subject to multiple risks, including volatility in global energy prices, unanticipated adjustments in administered energy prices, unfavourable climate conditions and potential fiscal slippages,” the MPC said.

Previous MPC

In the previous MPC meeting held on June 15, 2026, the central bank’s MPC decided to maintain the policy rate at 11.5%, stating that the current monetary stance remains appropriate to steer inflation towards the medium-term target range of 5-7%.

Earlier, analysts expected the SBP to keep its benchmark policy rate unchanged, as escalating geopolitical tensions in the Middle East and rising oil price risks overshadow improving domestic inflation and mounting arguments for monetary easing.

In a poll conducted by Topline Securities, 97% of respondents expect the policy rate to remain unchanged at the Jul 27, 2026 MPC meeting. Meanwhile, the remaining 3% anticipate a 100bps cut.

In its report, AKD Securities said that a comfortable external account position, supported by tight monetary policy, prudent fiscal management, improving credit rating and continued progress on structural reforms, is a positive economic indicator.

SBP should resist the temptation to blink

At the same time, weakening leading economic indicators and a contraction in money supply strengthen the case for supportive monetary easing.

“However, renewed geopolitical tensions following the escalation of the US-Iran conflict, including the re-closure of the Strait of Hormuz and Houthi threats of a naval blockade targeting Saudi Arabia, have heightened uncertainty.

“This, along with upcoming floods forecast during the last week of this month, has renewed inflationary pressures.

“Subsequently, we expect the SBP to maintain the policy rate unchanged at the upcoming MPC meeting,” it said.

Topline echoed similar views; it noted that following the signing of the US-Iran Memorandum of Understanding (MoU) on June 18, 2026, the easing of geopolitical tensions and the softer international oil prices led market participants to increasingly price in cumulative rate cuts of 100–150bps over the next two to three MPC meetings.

SBP releases MPC calendar for FY27, doubles press briefings

However, renewed tensions between the US and Iran over the past two weeks have reversed part of that optimism.

“In light of these developments, we expect the SBP to maintain the policy rate at 11.5% in its July 27, 2026 MPC meeting,” it said.

Similarly, JS Global noted that renewed geopolitical flare-ups and disruptions to critical energy trade routes have elevated global uncertainty, prompting expectations of a cautious stance from the SBP.

“With external risks outweighing the case for further easing, MPC is likely to keep the policy rate unchanged at 11.50%,” the brokerage house said.

Industrialists disappointed

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) expressed profound disappointment on the SBP’s decision.

The apex trade body termed the decision as “contractionary,” warning that holding the benchmark interest rate at an elevated level will continue to stifle economic activity, hamper access to finance, and severely undermine industrial revival efforts across the country.

Saquib Fayyaz Magoon, Acting President of FPCCI, categorically denounced the central bank’s cautious approach, emphasising that the business community had anticipated some reduction to help bring down the exorbitant cost of doing business – and facilitate trade & industry to cope with the economic challenges.

The SBP’s Monetary Policy Committee (MPC) is expected to meet next week on Monday, i.e. 27 July, 2026; however, both AKD Research and Topline Securities expect no change in the policy rate.

In a poll conducted by Topline Securities, 97% of respondents expect the policy rate to remain unchanged at the Jul 27, 2026 MPC meeting. Meanwhile, the remaining 3% anticipate a 100bps cut.

In its report, AKD Securities said that a comfortable external account position, supported by tight monetary policy, prudent fiscal management, improving credit rating and continued progress on structural reforms, is a positive economic indicator.

At the same time, weakening leading economic indicators and a contraction in money supply strengthen the case for supportive monetary easing.

“However, renewed geopolitical tensions following the escalation of the US-Iran conflict, including the re-closure of the Strait of Hormuz and Houthi threats of a naval blockade targeting Saudi Arabia, have heightened uncertainty.

“This, along with upcoming floods forecast during the last week of this month, has renewed inflationary pressures.

“Subsequently, we expect the SBP to maintain the policy rate unchanged at the upcoming MPC meeting,” it said.

Topline echoed similar views; it noted that following the signing of the US-Iran Memorandum of Understanding (MoU) on June 18, 2026, the easing of geopolitical tensions and the softer international oil prices led market participants to increasingly price in cumulative rate cuts of 100–150bps over the next two to three MPC meetings.

However, renewed tensions between the US and Iran over the past two weeks have reversed part of that optimism.

“In light of these developments, we expect the SBP to maintain the policy rate at 11.5% in its July 27, 2026 MPC meeting,” it said.

Meanwhile, Topline expects inflation to remain well contained, but warned that heightened geopolitical uncertainty and the recent rebound in oil prices warrant a cautious approach before considering any policy easing.

“We expect inflation to average at 7.0-8.0% during FY27E,” Topline said.

AKD Securities, however, forecast inflation to average 5.9% in FY27E from an average of 7.1% in FY26, primarily because of disinflation in the Transport Index as “we expect international oil prices to remain subdued on enhanced likelihood of permanent resolution of US-Iran conflict”.

Pakistan’s headline inflation clocked in at 11.1% on a year-on-year (YoY) basis in June 2026, as shown by Pakistan Bureau of Statistics (PBS) data on Wednesday.

The consumer price index (CPI) was recorded at 11.7% in May 2026. The CPI stood at 3.2% in June 2025.

On a month-on-month basis, it decreased by 0.3% in June 2026 as compared to an increase of 0.5% in the previous month and an increase of 0.2% in June 2025.

During the last fiscal year 2025-26, inflation stood at 7.05% against 4.49% recorded in the same period last year.

“The YoY uptick in inflation has largely been driven by increases in energy and transportation costs due to rising oil prices amid ongoing geopolitical tensions,” said Arif Habib Limited (AHL), in a note.

Urban CPI inflation increased by 11.2% on a year-on-year basis in June 2026, as compared to an increase of 11.8% in the previous month and an increase of 3.0% in June 2025.

On a month-on-month basis, it decreased by 0.5% in June 2026 as compared to an increase of 0.7% in the previous month and an increase of 0.1% in June 2025.

Rural CPI inflation increased by 10.9% on a year-on-year basis in June 2026 as compared to an increase of 11.5% in the previous month and an increase of 3.6% observed in June 2025.

On a month-on-month basis, no changes were observed in June 2026 as compared to an increase of 0.3% in the previous month and an increase of 0.5% in June 2025.

Government expectations

In its latest monthly outlook, the Ministry of Finance noted that the recent easing of geopolitical tensions, due to the ongoing peace efforts in the Middle East, has improved global market sentiment.

Consequently, international crude oil prices have eased from their recent highs, which is expected to reduce imported inflationary pressures and help lower domestic fuel and transportation costs.

“Inflation is anticipated to remain within the range of 11-12% for June 2026,” it said, adding that lower international oil prices are also expected to support the external account by containing the oil import bill.

Last month, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided to keep the policy rate unchanged at 11.5%. It is assessed that inflation in June will remain in double digits for the next few months, before gradually easing subsequently.

The central bank has also decided to increase the frequency of post-MPC press conferences from two to four times a year. The press conferences by SBP’s Governor will be conducted following the MPC meetings in July, October, January and April.

At the same time, SBP has decided to publish the presentation prepared by the staff for the post-MPC analyst briefing.

The presentation will be published on SBP’s official website one day after the MPC meeting.

“This decision is aimed at bringing greater transparency into the MPC’s reaction function and to increase stakeholders’ confidence about the thorough and data-driven monetary policy formulation process at the SBP,” read the statement.

“Lastly, the SBP has decided to streamline the process for the publication of the minutes of the MPC meetings.

“The minutes will now be published by the end of the 4th week of the corresponding MPC meeting on SBP’s website,” it added.

It said that the continuous improvements in SBP’s monetary policy-related communications are guided by the SBP’s Strategic Plan – Vision 2028 – which aims to enhance the effectiveness of monetary policy transmission by anchoring inflation expectations and facilitating the formal adoption of an inflation targeting regime.

Last week, the Monetary Policy Committee (MPC) of the SBP decided to keep the policy rate unchanged at 11.5%.

“The committee noted that global oil prices have eased following the recent positive geopolitical developments, yet they remain elevated as compared to pre-conflict levels. Nonetheless, as anticipated in the last MPC meeting, the impact of the conflict is now reflecting in recent economic indicators,” read the statement.

Citing budget documents, he noted that the government has earmarked Rs8.054 trillion for mark-up payments in FY2026–27, including Rs6.96 trillion on domestic debt and Rs1.07 trillion on foreign debt. With the Federal Board of Revenue (FBR) targeting Rs15.26 trillion in tax collection, he stressed that debt servicing alone will consume the majority of taxpayers’ contributions.

“How long can the economy sustain such fragile fiscal conditions?” he asked, urging policymakers to rethink borrowing-led strategies and instead strengthen indigenous economic capacity. “It is only mark-up. Just imagine the quantum of debt,” he remarked.

He added that the government continues to finance its budget deficit through domestic borrowing from the banking system via Treasury Bills and Pakistan Investment Bonds. He noted that commercial banks prefer investing in government securities due to secure and high returns, rather than channeling funds into productive sectors that generate real economic growth.

Khurram Ijaz also warned that persistently high interest rates are compounding fiscal pressures on both the government and the general public. He called on the SBP to significantly reduce the policy rate to encourage investment in productive sectors.

“Keeping high interest rates only attracts people to park their money in banks and earn returns without contributing to the real economy,” he said.

He further observed that many industrialists are shifting capital away from manufacturing and into banking deposits due to high energy costs, labour expenses, and regulatory burdens that make industrial operations increasingly difficult.

He noted that while monetary policy had previously seen easing, bringing rates down to 10.5%, the trend has reversed, with the policy rate now rising to 11.5%.

Ijaz urged the government to shift focus away from debt-driven financing and instead prioritize export-led growth and industrial expansion, warning that continued reliance on borrowing will only deepen the tax burden on citizens.

The Monetary Policy Committee (MPC) met for the fourth time this year. The decision was in line with market expectations.

“The committee noted that global oil prices have eased following the recent positive geopolitical developments, yet they remain elevated as compared to pre-conflict levels. Nonetheless, as anticipated in the last MPC meeting, the impact of the conflict is now reflecting in recent economic indicators,” read the statement.

As per the MPC, headline inflation rose to double digits in April and May, while core inflation also edged up.

“Moreover, economic activity is showing some signs of moderation, reflecting the impact of elevated prices, austerity measures and prevalent economic uncertainty. Meanwhile, the external account pressures remain moderate,” it said.

The MPC observed that the macroeconomic outlook is broadly unchanged from its previous meeting.

“In this context, the MPC assessed that the current monetary policy stance remains appropriate to guide inflation towards the target range of 5 –7% over the medium term,” it said.

The MPC noted the following key developments since its last meeting.

“First, real GDP growth for FY26 is provisionally estimated at 3.7% by the PBS.

“Second, confidence of both consumers and businesses recovered marginally in the latest sentiment surveys, while their inflation expectations eased somewhat.

“Third, the successful completion of IMF reviews for EFF and RSF, coupled with ongoing purchases, increased SBP’s FX reserves to $17.2 billion as of June 5, 2026.

“Fourth, the government has estimated primary balance surplus for FY26 at 2.5% of GDP and is targeting a surplus of 2.0% of GDP for FY27.

“Lastly, the Middle East conflict has begun to impact macroeconomic conditions in many economies, and a rising number of central banks have started to raise their policy rates,” it noted.

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.

Inflation outlook

The MPC assessed that inflation may remain in double digits for the next few months, before gradually easing subsequently.

“This outlook is subject to multiple risks, including geopolitical developments, the extent of pass-through of global prices to domestic fuel prices, the magnitude of adjustments in power and gas tariffs, potential fiscal slippages, and uncertain food prices amidst weather-related challenges,” it said.

Previous MPC

In the previous MPC meeting held on April 27, 2026, the central bank raised the policy rate by 100bps, increasing it to 11.5%, in line with market expectations.

Earlier, Topline Securities expected interest rates to remain unchanged.

In a poll conducted by Topline Securities, 49% of respondents expect the policy rate to remain unchanged on Jun 15, 2026, MPC meeting. Meanwhile, the remaining 49% anticipate an increase, with 34% expecting a 50bps hike and 15% forecasting a 100bps hike. While 2% expect a decline of up to 50bps.

“The uncertainty/mix view over rate change expectations is primarily driven by high volatility in oil prices. Our view of the status quo is backed by efforts/steps taken by involving parties in the war and active mediation by Pakistan,” said the brokerage house.

Meanwhile, Pakistan Institute of Development Economics (PIDE) noted that market expectations are broadly aligned with a cautious hold.

“Recent commentary suggests that, while views remain divided between status quo and a modest hike, easing oil-price and geopolitical pressures have reduced the probability of another increase, whereas still-elevated inflation and expectation risks make a rate cut premature,” it added.

Industrialists denounce status quo

Atif Ikram Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), has denounced the status quo saying that a static policy rate in the double digits is “highly detrimental to the nation’s economic survival; and, failure to ease borrowing costs will accelerate de-industrialisation and severely compromise export targets, which are highly critical for earning precious foreign exchange for the country”.

Sheikh expressed his concern over the central bank’s disconnect from the challenges being faced by trade and industry.

“The decision to hold the policy rate is unfortunate, despite a clear downward expectation in inflation numbers on the back of the impending US-Iran peace deal being facilitated by Pakistan, and gradual normalisation of global energy supplies,” he said.

Meanwhile, Saquib Fayyaz Magoon, SVP FPCCI, highlighted that the benchmark policy rate has created an artificially high cost of capital.

“Our regional competitors are operating with significantly lower borrowing costs, rendering Pakistani exports fundamentally uncompetitive in the global arena. Maintaining the status quo only penalises SMEs and large-scale manufacturing alike, effectively halting capacity expansion and job creation,” he said.

Since exiting a decade-long, massive stimulus programme in 2024, the central bank has raised its short-term policy rate several times, including in December to 0.75% from 0.5%.

The BOJ thus pays 0.75% interest on the excess reserves financial institutions park with the central bank under a programme aimed at controlling money market rates around its policy rate.

The BOJ spent 2.7 trillion yen ($16.95 billion) on such interest payments in the fiscal year ending in March, much higher than the previous year’s 1.3 trillion yen and exceeding the 2.5 trillion yen interest it earned from its government bond holdings, the data showed.

Also read: BOJ warns of financial system risks from investment fund activity

It was the first time the BOJ’s interest payment on reserves exceeded the amount of interest earned from its bond holdings, highlighting the cost of normalising monetary policy.

As a result, the BOJ saw net income shrink to 1.9 trillion yen in fiscal 2025 from 2.3 trillion yen in the previous year, the data showed.

Aside from raising its short-term policy rate, the BOJ has been slowing bond purchases to scale back its massive balance sheet as part of its policy normalisation efforts.

Due in part to shrinking government bond holdings, the BOJ’s total asset balance fell 9.1% as of the end of fiscal 2025 from a year earlier, the data showed. Japan’s fiscal year runs from April to March of the following year.

Wrapping up the May policy meeting, the Reserve Bank of New Zealand kept the cash rate on hold at 2.25%, and said three members voted to raise interest rates by a quarter-point while three voted to leave rates steady. RBNZ Governor Anna Breman had the ultimate deciding vote.

“On balance, the OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement,” the RBNZ said in its statement.

“The pace of OCR increases will depend on the relative influence of persistent wage- and price-setting behaviour versus weaker economic activity on medium-term inflation pressures.”

The kiwi dollar jumped 0.7%to $0.7162, while two-year swap rates are 3 basis point at 3.4821%. Markets narrowed the odds of a first rate hike in July to 72% from 68% before.

The revised forecast for the cash rate now implies at least two more rate hikes by the end of the year.

Also read: New Zealand dollar rallies as RBNZ comes close to hiking

Bank of New Zealand said in a note that while the committee vote had been split, “they all agreed that rates will need to rise and rise soon.”

Capital Economics expects the central bank to hike rates sooner than its own forecast of for an October move. “While the MPC did leave rates on hold today, it does seem like it is leaning towards hiking sooner rather than later,” it said.

All but one of 29 economists polled by Reuters expected a steady decision for the third straight meeting, while over half of them warned the prolonged Middle East conflict could force a rate hike by September.

RBNZ calculus shifts

The RBNZ has slashed rates by 325 basis points since August 2024, reversing its post-pandemic tightening drive that pushed the economy into recession and cooled inflation. That calculus is now shifting, with inflation running at 3.1% for two straight quarters, sitting above the central bank’s target range of 1% to 3%.

There are signs that near-term inflation expectations are starting to shift as war-driven disruptions to global oil supply dragged on. Central banks globally have also turned hawkish -the Federal Reserve is now seen tightening rather than easing policy this year while Australia’s central bank has hiked rates three times already.

A fragile weeks-long Middle East ceasefire has been tested this week with U.S. strikes on Iranian targets. The Strait of Hormuz, which carries 20% of the world’s oil and gas shipments, has been effectively shut by Tehran since the war erupted late in February.

The RBNZ now expects inflation to rise to 4.3% in the September quarter, and unemployment, which hovered near a decade high at 5.3%, to peak at 5.4% and stay there until June 2027.

Although New Zealand’s economy has emerged from recession, growth is still anaemic and is being further squeezed by the Middle East turmoil, persistent uncertainty about the war’s broader global impact and a tight fiscal stance.

New Zealand’s conservative government, led by Prime Minister Christopher Luxon, is set to unveil its annual budget on Thursday, with tight spending controls expected to dominate and little in the way of economic stimulus.

The central bank also cut its forecasts for UK growth in 2026 and 2027 as the global energy shock weighs on the economy.

BoE governor Andrew Bailey said the interest rate was at a “reasonable place given the situation of the economy and the unpredictability of events in the Middle East.”

“Whatever happens, our job is to make sure that inflation gets back to the two percent target after the initial impact of the war on energy prices has passed,” he added.

READ MORE: Stock markets are too high and set to fall, BOE deputy governor tells BBC

The central bank now estimates gross domestic product growth to hit 0.7 or 0.8 percent this year and 0.8 or 1.0 percent in 2027.

It had previously forecast GDP output of 0.9 percent this year and 1.5 percent in 2027.

The BoE took the unusual step of publishing three forward-looking scenarios for the UK economy.

All three suggest that rates will need to rise, but in the worst-case scenario, inflation could climb to 6.2 percent in the first quarter of 2027.

In that scenario, the oil price would have to stay around $130 a barrel for an extended period, with gas prices soaring further.

Policymakers including Bailey voted 8-1 to hold the benchmark rate on Thursday, with one dissenter voting in favour of hiking by 0.25 percentage points.

The decision came as the European Central Bank prepared to hold interest rates steady again as policymakers weigh concerns about higher inflation against weakening growth.

The Federal Reserve held interest rates steady Wednesday, its third pause in a row, as it also waits for the full impacts of the war to become clear.

The BoE last cut its interest rate by a quarter-point to 3.75 percent at its policy meeting in December.

Energy costs have spiked since the near-total closure of the Strait of Hormuz, through which about a fifth of the world’s oil and gas usually passes, following the outbreak of the US-Israeli war against Iran.

Eurozone inflation is already picking up – it jumped to three percent in April, above the ECB’s two-percent target – but concerns about inflation have to be balanced against the risk of curbing lacklustre growth by making borrowing more expensive.

“The upside risks to inflation and the downside risks to growth have intensified,” the ECB said in a statement announcing its decision.

“The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy,” it said.

READ MORE: ECB set to hold rates steady with eye on Iran crisis

Ahead of the meeting, analysts had expected the ECB to keep its key deposit rate at two percent, where it has been since June last year, as the bank waits to see how the war plays out.

Italian bank UniCredit wrote in a note that it did not “see the urgency” for the Frankfurt-based institution to act, particularly as inflation was around the ECB’s target before the conflict.

“The weakening of the outlook for demand, particularly for private consumption, reinforces the case for the ECB to be patient,” it said.

Eurozone economic growth slowed to 0.1 percent in the first three months of the year, official data showed Thursday, while figures since the outbreak of the war have pointed to falling consumer and investor confidence and weakening business activity.

Looking to June

Other central banks have also taken a cautious approach.

The Federal Reserve held interest rates steady Wednesday, faced with its own difficult mix of a weakening labour market and rising inflation, marking its third pause in a row.

The Bank of England also froze borrowing costs after its meeting Thursday at the same time as cutting its forecasts for UK growth this year and next.

All eyes will be on President Christine Lagarde’s post-rate call press conference for clues as to the path forward, with some betting on a rate rise in June as inflation picks up.

“Any hints about a June move will be taken on board,” ING bank economist Carsten Brzeski said ahead of the meeting.

‘Not in a rush’

Much of the inflation and growth outlook depends on whether Iran and the United States can come to a lasting agreement that secures transit of energy supplies through the Strait of Hormuz, a factor over which the ECB has no control.

Speaking in Berlin earlier this month, Lagarde said the institution was facing “double uncertainty” in that it was unclear both how long the shock would last and what its effect on the broader economy would be.

ECB officials have been keen to stress the difference between the situation now and that after Russia’s invasion of Ukraine in 2022, when some criticised the central bank for moving too slowly in its response to surging inflation.

At that time, an energy shock coupled with post-pandemic supply chain woes and tight labour markets pushed eurozone inflation to record highs.

Bank of Latvia governor Martins Kazaks, a member of the ECB’s rate-setting governing council, had told the Financial Times ahead of the decision that the bank was “not in a rush”.

“We still have the large luxury of collecting data and forming our view”, he said.

The association opposed provisions in the draft Auto Policy 2026-31 seeking to grant Plug-in Hybrid Electric Vehicles (PHEVs) and Range Extended Electric Vehicles (REEVs) the same incentives as Battery Electric Vehicles (BEVs).

According to PAAPAM, PHEVs and REEVs continue to rely on internal combustion engines and fossil fuels and therefore should not qualify for the reduced one percent sales tax rate currently applicable to zero-emission BEVs.

The association noted that the standard sales tax rate stands at 18 percent and cautioned that the proposed reduction could lead to billions of rupees in revenue losses for the Federal Board of Revenue.

The PAAPAM further stated that most hybrid and range-extended vehicles are imported into Pakistan as fully built units with minimal local content, which could undermine decades of investment in domestic manufacturing and threaten thousands of jobs linked to the local auto parts industry.

Copyright Business Recorder, 2026

A fourth dissent at the meeting came in favor of a quarter-percentage-point rate cut.

“Inflation is elevated, in part reflecting the recent increase in global energy prices,” the Fed said in its policy statement, a shift from previous language saying that inflation was just “somewhat” elevated. “Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.”

The 8-4 vote was the most divisive since October 6, 1992, and shows the breadth of opinion incoming Fed Chair Kevin Warsh will face in pursuing rate cuts that President Donald Trump says he expects from his chosen successor to Jerome Powell, whose term as central bank chief ends on May 15.

Though the latest policy statement retained language about how the Fed would assess the “extent and timing of additional adjustments” to rates, a phrase that pointed to future cuts as the next likely move, three policymakers objected.

Also read: Fed minutes of March meeting could flesh out how policymakers view war risks to economy

Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, while supportive of holding the policy rate steady in the current 3.50%-3.75% range, “did not support inclusion of an easing bias in the statement at this time” and voted against the new statement.

With global oil prices lodged above $100 a barrel due to the U.S.-backed war against Iran, the Fed has been hard-pressed to determine if the impact is likely to be seen more through depressed growth or higher inflation, keeping the policy rate in the range where it has been since December despite repeated demands by Trump for looser monetary policy.

Alongside elevated inflation, “the unemployment rate has been little changed in recent months” while the economy continues to expand “at a solid pace,” the Fed said.

FED leadership transition

The new statement is likely the last to be issued under Powell’s leadership.

Earlier on Wednesday, the Republican-controlled Senate Banking Committee voted to advance Warsh’s nomination on a party-line 13-11 vote. The Senate is expected to confirm Warsh next month.

Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the results of the meeting and the economic outlook, and may also address whether he plans to remain at the Fed as a governor in a separate term that runs through January of 2028.

The minutes of the Fed’s March 17-18 meeting noted a growing number of policymakers were open to the idea that the central bank’s next move might be a rate increase, and the number of hawkish dissents may prompt investors to boost bets that borrowing costs will rise this year.

Since the March meeting, inflation has shown signs of rising, with officials concerned that sustained high global oil prices could evolve from a one-time price shock to a jump in underlying pressure on prices.

Fed Governor Stephen Miran, in what may also be his last meeting, again dissented in favor of a quarter-percentage-point rate cut, as he has done at every meeting since moving to the central bank from his prior job as one of Trump’s top economic advisers.

The central bank’s rate-setting Federal Open Market Committee (FOMC) began its gathering at 10:00 am Eastern time (14:00 GMT), a spokesperson said.

Fed officials are set to keep rates steady at a range between 3.50 percent and 3.75 percent, extending their pause on rate cuts since the start of the year. Their decision will be announced on Wednesday.

The US central bank has a dual mandate to keep inflation to its long-term two-percent target and to ensure maximum employment.

READ MORE: Fed set to hold rates steady again

US inflation, however, has soared well above that level for years. It initially spiked in the pandemic but prices have not stabilized since, leaving consumers battered by years of higher-than-expected price increases.

In March, consumer inflation rose sharply to 3.3 percent year-on-year, driven by higher energy prices as a result of the Iran war.

The Middle East has been plunged into violence since the United States and Israel launched the war on February 28 with wide-ranging airstrikes, prompting Iranian retaliatory action.

Iran has virtually blocked the key Strait of Hormuz, through which about a fifth of the world’s oil and gas normally flows, spiking energy prices and leading to widespread supply shortages.

Fed policymakers have signalled that they are concerned about the knock-on effects of the energy price increases, fuelling overall inflation and potentially slowing the economy due to production cost increases.

Markets overwhelmingly expect the Fed to keep rates unchanged, however, as the central banks waits to see on which side of its mandate it will need to intervene.

Powell’s last meeting?

While the rate decision has not drawn much speculation this month, all eyes on Wednesday will be on Fed Chair Jerome Powell’s press conference, likely his last in this role.

US President Donald Trump has frequently criticized and insulted Powell in the former’s second term in the White House, making clear his desire for the independent Fed to lower interest rates.

Powell’s term as chair ends in May, and his successor – Trump nominee Kevin Warsh – has faced a rocky road to confirmation.

On Friday, a key obstacle on that road was removed when the US Justice Department said it was dropping – for now – a criminal probe into Powell over cost overruns on a building renovation project.

Days later, Republican Thom Tillis – who had vowed to hold up Warsh’s nomination while the probe against Powell was ongoing – said he would support the confirmation.

If Warsh is confirmed he would succeed Powell in May as chair. The outgoing Fed chief could, however, stay on as a member of the board, in what would be an unusual but not unprecedented move.

Powell’s term on the board ends in January 2028.

The U.S.-based company announced it had turned “water positive” in India this year - meaning it returns more water to communities than it uses across its operations, which include data centres, corporate offices and warehouses.

It said it accomplished the goal a year earlier than planned, both by reducing water use at its facilities and through projects such as watershed restoration and efficient irrigation.

Amazon, Microsoft and Alphabet’s Google are among companies that are facing shareholder and activist pushback over the environmental impact of data centre projects, Reuters reported earlier this year.

Amazon has set a goal to become water positive globally in its data centre operations by 2030. The company said it does not use water to cool its Indian data centres.

AirTrunk to invest $21 billion in India data centre

The issue of water is particularly acute in India, which is home to 18% of the global population but only 4% of the world’s freshwater resources.

The summer generally brings shortages and rationing, and this year is particularly severe, with a strong El Nino resulting in weak monsoon rains.

Among the hardest hit states are Karnataka, home to tech-hub Bengaluru, and Maharashtra, where financial capital Mumbai is located. Mumbai, with a population of 13 million, has just 40 days’ worth of water left, authorities said this week.

Amazon is expanding its footprint in India, where it plans to invest more than $35 billion by 2030 to boost AI capabilities and exports.

Its cloud services provider, Amazon Web Services, plans to invest about $8.2 billion in Maharashtra, India’s information technology ministry said last year.

Microsoft and Google have also announced sizeable data centre investments in India over the past year.

Pakistan’s rating affirmation reflects progress on fiscal consolidation and macro stability measures, broadly in line with its IMF programme and supporting its funding capacity, the credit rating agency said in a statement on Monday.

“Foreign exchange (FX) buffers rebuilt over the past year provide a cushion against the economic impact of the war in the Middle East, while Pakistan’s role as a ceasefire broker may provide tangible benefits and partly offset external pressures.”

The country’s high exposure to the global energy price shock nonetheless remains a key risk, particularly if it leads to a sharp drop in FX reserves, said the release.

Fitch Ratings noted that Pakistan’s programme with the International Monetary Fund (IMF) remains key.

The authorities reached a staff-level agreement with the IMF on the third review of Pakistan’s Extended Credit Facility (ECF) and second review of the Resilience and Sustainability Facility in March 2026, unlocking a combined $1.2 billion if the agreement is approved by the IMF board.

“The programme will continue to provide a key policy anchor, particularly for the fiscal framework, and will help mobilise additional multilateral and bilateral support,” Fitch Ratings said.

It noted that the South Asian nation remains vulnerable to energy shocks.

“Pakistan sources up to 90% of its oil from the Gulf and has limited storage capacity, creating high exposure to the Middle East conflict and constricted energy supply via the Strait of Hormuz,” said Fitch Ratings.

It said that the government fuel subsidies since early March have been funded by reallocating expenditure from other areas of the budget, while costs have been reduced by large pump-price hikes and the switch to a more targeted support scheme from April.

“We expect the overall impact on the fiscal deficit to be contained, as the government is likely to cut other spending,” said Fitch Ratings.

The rating agency said that higher world energy prices will raise inflation in Pakistan in the coming months, especially with the switch to more targeted subsidy support and base effects.

“We expect inflation to average 7.9% in FY26 (ending 30 June 2026), above the FY25 level but well below the 23.4% in FY24,” it said.

The State Bank of Pakistan (SBP) cut the policy rate to 10.5% by the end of 2025, from 22.0% at the end of May 2024, and market interest rates fell in tandem.

However, the term interbank rate had risen to about 100bp above the policy rate by early April, on inflation concerns tied to the tight energy supply.

“The shock will detract from GDP growth, but we still expect growth of 3.1% in FY26, up slightly from 3.0% in FY25, due to improved confidence from lower borrowing costs,” said Fitch.

READ MORE: Fitch Ratings affirms Pakistan’s long-term debt ratings at B-

The rating agency assumed that Pakistan’s external debt amortisations will rise to $12.8 billion (2.9% of GDP) in FY26, from almost $8 billion in FY25.

A $3.5 billion deposit was repaid to the UAE in April.

“Our amortisation projections exclude another $9.2 billion in bilateral deposits and loans we expect to be rolled over.

“We expect debt to be financed mainly by IMF and other multilateral and bilateral inflows, followed by commercial financing. Pakistan plans to issue a panda bond this fiscal year.”

“We expect the primary surplus to narrow to 2.1% of GDP in FY26, 0.3pp below the official target,” it added.

This will follow a rise in non-interest current expenditures and limits to sustained gains in tax revenue/GDP, due to capacity constraints and difficulties executing federal tax reforms at the provincial level.

“We expect the primary surplus to shrink further in FY27 as extraordinarily high SBP dividends are unlikely to continue in our view, while lower interest payments as a share of GDP will help keep fiscal deficits stable at about 5.3% of GDP.”

Fitch Ratings expects the current account to return to a small deficit of 1.1% in FY26 from a rare surplus of 0.5% in FY25.

Moreover, FX reserves are expected to decline, albeit modestly.

“We expect the current account deficit, and repayment of a $1.3 billion Eurobond and the UAE deposits in April to bring FX reserves down to $21.3 billion by the end of FY26.

“This will cover 2.9 months of current external payments, from $22.6 billion at the end of FY25. Net FX reserves remain negative, reflecting FX reserve deposits of domestic commercial banks, a Chinese central bank swap line and bilateral deposits at the SBP.”

Fitch Ratings noted that tensions between Pakistan and Afghanistan have escalated since February 2026. Nevertheless, the potential impact on trade and the wider economy is likely to be limited.

“Our baseline does not include further escalation, given Pakistan’s financing constraints, but the conflict presents a considerable risk to its commitment to fiscal consolidation.”

The spike comes in the wake of a steep hike in petrol and diesel prices as the government struggled to sustain massive subsidies.

The Consumer Price Index (CPI)-based inflation clocked in at 7.3% on a year-on-year (YoY) basis in March 2026, compared to 7% in the previous month and 0.7% in March 2025.

Meanwhile, the Sensitive Price Index (SPI)-based inflation for the week ending April 2 increased by 1.01%, mainly due to a rise in the prices of Liquefied Petroleum Gas (LPG), which surged by 13.28%, according to weekly data released on Friday by the Pakistan Bureau of Statistics (PBS).

“Inflation will rise to 13% in April and touch above 15% in May and June,” said Ali Khizar Aslam, Director Research at Business Recorder, while talking to Aaj News on Friday.

As a result, the economic expert is now anticipating a 1–2% increase in interest rates in the upcoming monetary policy review, as the central bank moves to contain inflationary pressures.

Currency pressures may also intensify, with projections suggesting a 5–7% depreciation in the rupee, “pushing the USD at around 290 against PKR by June,” he added.

Last month, the central bank decided to keep its benchmark policy rate unchanged at 10.5%. The decision was in line with market expectations, which anticipated the central bank to maintain the status quo in the wake of escalating geopolitical tensions in the Middle East, which have swelled energy prices, raising fears of a new wave of inflation.

 Meanwhile, an emerging energy challenge complicates the outlook, noted Khizar, adding that a potential shortfall in RLNG supplies from Qatar, coupled with transmission bottlenecks, could lead to higher electricity costs and intermittent load shedding, particularly in Punjab during peak summer months.

On Thursday, the government announced a massive increase in fuel prices, with diesel prices rising by 55% and petrol by 43%.

However, a day after the sharp increase, Prime Minister Shehbaz Sharif on Friday announced that the government would reduce the petroleum levy on petrol by Rs80 per litre for one month.

“We don’t know where this is going to go, but we have to sort of think maybe caution is warranted” for the U.S. central bank, given the recent surge in energy prices, Fed Governor Christopher Waller said in a CNBC interview.

Noting that many oil price shocks usually involve a surge and then a subsequent pullback, the Fed is watching to see if prices surge and stay high, as that poses the most notable risk to drive up inflation that’s already above the central bank’s 2% target, he said.

READ MORE: Fed leaves rates unchanged, sticks with single cut in 2026 despite higher inflation

If high energy prices start pushing up underlying rates of inflation, “you do have to kind of respond,” Waller said. But for now, “I just want to wait and see where this goes, and if things go reasonably well and the labor market continues to be weak, I would start advocating again for cutting the policy rate later this year,” Waller said, adding that he didn’t see any need to consider raising borrowing costs, as some Fed officials are now contemplating.

In a separate interview with Fox Business Network’s “Mornings with Maria“ program, Fed Vice Chair for Supervision Michelle Bowman said “it’s too early to tell what the longer-term imprint will be on the U.S. economic activity, and how we should think about that in terms of our longer-term economic forecast, and how we should think about that in terms of our (policy) meetings and any rate changes that we might make as a result of economic evolution coming forward.”

Uncertainty in driver’s seat

Waller and Bowman were the first Fed policymakers to speak publicly since the U.S. central bank decided on Wednesday to leave its benchmark overnight interest rate in the 3.50%-3.75% range following the end of a two-day policy meeting. The Fed’s policy statement flagged the uncertainty that the U.S.-Israeli war with Iran was creating for the economic outlook.

Updated economic projections released by the Fed on Wednesday showed policymakers continuing to pencil in a single quarter-percentage-point rate cut this year and another such move in 2027.

READ MORE: Central banks stand ready to tackle war-led inflation

Traders of short-term interest-rate contracts, however, are now pricing in increased odds of a rate hike in December, a dramatic shift from expectations earlier this week of a reduction in borrowing costs. Bank of America economists said to hike rates, the job market should be stable with an unemployment rate of around 4.5% and core inflation as measured by the Personal Consumption Expenditures Price Index should exceed 3.2%, among other factors.

“These conditions are most likely to be met if the Iran shock is sustained but moderate” and the “sweet spot” for hikes has oil in the $80 to $100 per barrel range, they said.

A Dallas Fed report said “a closure of the Strait of Hormuz that removes close to 20% of global oil supplies from the market throughout (the) second quarter (of) 2026” should raise the price of oil to just shy of $100 per barrel.The volatile surge in energy prices triggered by the war and the uncertainty about the flow of oil and natural gas from the Middle East creates the risk of higher inflation, slower economic growth and job losses, as consumers are forced to spend more on energy.

That outlook creates a significant challenge for Fed policymakers because it threatens the central bank’s job and inflation mandates, potentially forcing them to choose which to emphasize. Meanwhile, some Fed policymakers are contemplating the need for rate hikes.

The case for hiking rates rests in part on the reality that the central bank has missed achieving its inflation target for years, which threatens to erode public confidence that price pressures will return to target.

Some Fed policymakers also are concerned about the already-tepid labor market.

Bowman did not say what she expects the Fed to do over the near term, but noted in her interview that “I’m still concerned about … the job market” and in terms of the monetary policy outlook, “I’ve written three cuts in … before the end of 2026, to hopefully support the labor market.” Bowman’s decidedly dovish monetary policy outlook contrasts with that of many of her Fed colleagues.

“War in the Middle East has pushed up global energy prices,” BoE governor Andrew Bailey said, adding that “if it lasts, it will feed into higher household energy bills.”

All nine policymakers voted to hold the benchmark rate, the first unanimous vote since September 2021.

The widely expected decision came as several major central banks are treading cautiously amid fears of an energy shock, with the European Central Bank (ECB) also set to keep borrowing costs unchanged Thursday.

Prior to the outbreak of the war, analysts had seen a March rate cut as a near certainty as UK inflation was expected to fall toward the bank’s two-percent target.

READ MORE: BoE warns of potential ‘sharp’ correction in markets

However, the BoE warned Thursday that “inflation will be higher in the near term as a result of the new shock to the economy.”

The BoE “stands ready to act” to tackle any surge in inflation, it said in a statement.

The central bank now projects inflation at 3.0 percent in the second quarter of the year and 3.5 percent in the third quarter.

The fresh concerns over inflation come as Britain’s economy has stagnated and its labour market remains weak.

“In contrast to the energy price shock in 2022, this shock was occurring at a point when growth was below potential,” the BoE said in its meeting minutes.

The energy shock unleashed by the Middle East war will also top the agenda at the ECB meeting, as fears grow of a major hit to the eurozone economy.

The US Federal Reserve kept rates on hold Wednesday, followed by the Bank of Japan.

The BoE last cut its interest rate at its policy meeting in December, opting for a quarter-point reduction to 3.75 percent.

While a cut to the interest rate can help individuals and businesses taking out loans, it reduces returns on savings deposited in banks.

Britain’s retail banks tend to pass on BoE rate cuts to their customers, easing the cost of mortgages and business loans.

New projections from U.S. central bank policymakers showed the Fed’s benchmark overnight interest rate would fall by just a quarter of a percentage point by the end of this year, with no hint of the timing of such a move. That view was unchanged from previous projections and remains out of step with President Donald Trump’s demand for a sharp drop in borrowing costs.

U.S. stocks pared losses slightly after the release of the Fed’s policy statement and projections, with the S&P 500 index last down about 0.6% and the Nasdaq Composite down about 0.5%.

The dollar pared its earlier gains, with the dollar index last up 0.27%. U.S. Treasury yields also pared gains, with the 10-year yield last up at 4.214%.

Also read: Fed leaves rates unchanged, sees just one cut in 2024 despite inflation progress

Inflation, as measured by the Fed’s preferred gauge, was expected to end the year at 2.7%, not far below its current rate and higher than the 2.4% projected in December, possible fallout from the spike in global oil prices that followed the start of the bombing campaign against Iran.

“Implications of developments in the Middle East for the U.S. economy are uncertain,” the Fed said in a policy statement that also noted ongoing stable unemployment.

In a press conference following the outcome of the FOMC meeting, Fed Chair Jerome Powell reiterated the uncertainty the war creates for the outlook.

“In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.”  He added that monetary policy is “well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, evolving outlook, and the balance of risks.”

The new rate and economic projections showed the Fed, for now, largely looking through the oil shock, with policymakers still expecting to lower rates this year and anticipating inflation to be 2.2% by the end of 2027, near the central bank’s 2% target.

Notably, no policymakers saw rates needing to move higher by the end of this year, though one official anticipated a rate increase in 2027.

Economic growth was upgraded slightly, to 2.4% for 2026 versus 2.3% in December, and the projected unemployment rate was unchanged at 4.4%.

Fed Governor Stephen Miran continued his string of dissents, voting against the decision to maintain the policy rate in the current 3.50%-3.75% range in favor of a rate cut.

Policy statement largely unchanged

The decision to hold the policy rate steady was widely expected in financial markets, but the projections provide fresh information about how the U.S. central bank is assessing the economic impact of a war that has disrupted global oil markets.

Oil prices have jumped from below $80 a barrel to $108 ahead of the Fed’s policy decision, with U.S. gasoline prices also spiking and new inflation data showing wholesale prices rising faster than expected even before the conflict began.

Other than the reference to the war, the Fed’s new statement was little changed from the one issued at the end of its January 27-28 meeting.

“He should be dropping Interest Rates, IMMEDIATELY,” Trump ‌said in a Truth Social post.

But since the US and Israel launched strikes on Iran on February 28, investors have rushed the other way, ​betting that higher oil prices will worsen inflation and keep the ​Fed from cutting until the end of the year, ⁠if then.

Interest-rate futures that had been priced for two quarter-point cuts ​by the end of the year before the conflict began are ​now barely pricing in one.

That’s despite the expectation that former Fed Governor Kevin Warsh, whom Trump picked to succeed Powell as a more rate-cut-friendly Fed ​chair, will take the helm of the US central bank ​in mid-May when Powell’s leadership term ends.

Fed holds rates steady, sees ‘elevated’ inflation and stabilizing job market

Iran’s new Supreme Leader Mojtaba Khamenei vowed ‌on ⁠Thursday to keep the Strait of Hormuz shut, disrupting transport for one-fifth of the world’s oil supply.

US West Texas Intermediate crude jumped, settling at $95.70.

Higher oil prices mean higher gasoline prices, which also ​can inflate prices for ​food and ⁠other goods via higher transport costs.

Food prices will also rise because Hormuz is a major global conduit ​for fertilizer shipments, analysts forecast.

Goldman Sachs analysts said ​on Thursday ⁠they now see PCE inflation, which the Fed targets at 2%, rising to 2.9% by December, and pushed their own expectation for ⁠the next ​Fed rate cut to September, from ​June previously.

The decision was in line with market expectations, which anticipated the central bank to maintain the status quo in the wake of escalating geopolitical tensions in the Middle East, which have swelled energy prices, raising fears of a new wave of inflation.

“While the incoming data was largely consistent with the macroeconomic projections shared after the January meeting, the Committee observed that the macroeconomic outlook has become quite uncertain following outbreak of the war in the Middle East,” the cental bank said in its Monetary Policy Statement.

“The MPC noted that the conflict in the Middle East has led to a sharp increase in global fuel prices as well as freight and insurance costs, while also affecting cross-border trade and travel.

“Given the evolving nature of events, the MPC observed that the intensity and duration of the conflict will both be important determinants of the impact on the domestic economy.

“In this regard, the Committee acknowledged the important role of the prudent monetary and fiscal policies in increasing the economy’s resilience to shocks.

“The MPC noted that macroeconomic fundamentals, especially in terms of inflation and the country’s FX and fiscal buffers, are better as compared to the time of the start of the Russia-Ukraine war in early 2022.

“The MPC’s initial assessment of the evolving geopolitical situation indicates that the outlook for key macroeconomic variables for FY 26 is within the earlier projected ranges. However, risks for the macroeconomic outlook have increased significantly,” it said.

In addition to the ongoing geopolitical events, the MPC noted the following key developments since its last meeting.

“First, inflation rose to 5.8% in January and further to 7% in February 2026.

“Second, the current account recorded a surplus in January, which, amidst weak official inflows, led to continued interbank FX purchases by the SBP and the buildup in FX reserves to $16.3 billion as of February 27.

“Third, large-scale manufacturing (LSM) grew by 0.4% y/y in December 2025, with cumulative growth reaching 4.8% in July-December FY26.

‘Fourth, consumers’ inflation expectations and confidence improved, while those of businesses remained broadly stable in February.

“Fifth, FBR tax collection remained below target in both January and February, further widening the cumulative shortfall during July-February FY26.

“Lastly, the US administration announced the imposition of uniform global tariffs, which may have noticeable implications for global trade.”

The committee noted the high degree of uncertainty in the outlook for international commodity prices and supply-chain disruptions in the backdrop of the war in the Middle East.

“In this context, the MPC deemed today’s decision as appropriate, and reaffirmed its commitment to ensure the hard-earned price stability.”

The committee also stressed the need for expediting structural reforms to ensure sustainable economic growth.

Real sector

Economic activity continued to strengthen, with high-frequency indicators – such as auto sales, domestic cement dispatches, electricity generation, POL sales (excluding furnace oil) – recording higher growth during July-January FY26, the MPC said.

“Recent policy and regulatory measures – including the reduction in the Cash Reserve Requirement and in markup rates on loans to exporters by banks, and downward adjustment in energy tariffs for industrial sector – have reinforced manufacturing prospects.

“In the agriculture sector, wheat sowing target has largely been met, and the input conditions remain favorable. The positive spillover impact of commodity-producing sectors is expected to support the wholesale and retail trade and transport segments of the services sector. Based on these developments, the MPC expects real GDP growth to remain within the earlier projected range of 3.75–4.75% in FY26. However, the outlook is subject to risks, particularly from the unfolding geopolitical developments.”

External sector

The current account posted a surplus of $121 million in January 2026, containing the deficit to $1.1 billion in July–January FY26. Imports declined in January, whereas exports and workers’ remittances largely stabilised at December levels. Workers’ remittances continued to finance a significant part of the trade deficit. In the financial account, net official outflows were recorded in January, whereas foreign investment inflows inched up slightly. SBP’s FX purchases continued to help building up SBP’s FX reserves. Going forward, the external environment has become more challenging due to the ongoing Middle East conflict, according to the statement.

“However, the current account deficit is likely to remain within the earlier projected range of 0 – 1% of GDP in FY26. In this backdrop, the Committee emphasised on the timely realisation of planned official inflows to achieve the targeted buildup in SBP’s FX reserves to $18 billion by June 2026.”

Fiscal Sector

The data on fiscal operations indicated continued consolidation, with the overall balance registering a surplus and the primary surplus remaining close to last year’s level, led by contained expenditures due to lower interest payments, the central bank said.

“However, the tax collection remained moderate, rising 10.6% during July–February FY26 – well below the pace required to meet the annual target. In this context, the Committee emphasised the importance of continuing the fiscal consolidation via base-broadening measures and undertaking structural reforms to ensure macroeconomic stability and sustainable economic growth.”

Money and credit

Since the last MPC meeting, broad money (M2) growth decreased to 16.0% as of February 20, due to a sharp reduction in the net budgetary borrowing from the banking system, whereas NFA’s contribution to M2 growth increased.

The committee noted that lower budgetary borrowing, along with liquidity generated through the recent CRR reduction, has created space for greater private sector lending.

“Consequently, PSC expanded by Rs790 billion up to February 20, reflecting growth in both working capital and fixed investment. Credit especially increased to textiles, wholesale and retail trade, and chemicals, whereas consumer financing continued to increase as well. Currency in circulation increased whereas deposits recorded a decline, leading to an increase in the currency to deposit ratio and a rise in reserve money growth.”

Inflation

Headline inflation rose to 7% y/y in February, “largely due to phasing out of low base effect from food and energy prices, along with rationalisation of fixed charges on households’ electricity bills”.

Meanwhile, core inflation increased to around 7.6% . The MPC assessed that the impact of higher expected domestic energy prices is “likely to be partially offset by recent favorable movement in food prices amidst improved supply of key items and better prospects of agriculture produce”.

The MPC also observed that the ongoing anchored inflation expectations and stable inflation environment are likely to somewhat limit the second-round impact of the increase in domestic fuel prices.

“At the same time, the MPC noted that this assessment is subject to significant risks, particularly those from the evolving geopolitical situation, as well as from volatile food prices and unanticipated adjustments in domestic administered energy prices.

“On balance, given these developments and risks, the Committee assessed that inflation may remain above 7 percent in the remaining months of FY26 and into FY27, it said.

At its previous meeting, held on January 26, 2026, the MPC, against market expectations, kept its benchmark policy rate unchanged at 10.5%.

Market experts widely expected the central bank to maintain the status quo in today’s meeting on account of escalating tensions in the Middle East.

Arif Habib Limited (AHL) had anticipated that the SBP would keep the policy rate unchanged, “signalling caution amid a rapidly evolving global backdrop”.

Similarly, Topline Securities, another brokerage house, had expected no change, citing a recent survey showing that 96% of participants expected no rate cut.

The brokerage house attributed the shift in market perception to war like situation in the Gulf region, which has jacked up Brent oil prices by 25% in the last 2-3 weeks.

Similarly, a Reuters poll found that the central bank would hold its key policy rate steady as rising global energy prices and regional tensions cloud the inflation outlook and limit the room for cuts.

All 10 analysts in a Reuters poll expect the SBP to hold the rate at 10.5%.

“The SBP is expected to keep the policy rate unchanged at 10.5%, signalling caution amid a rapidly evolving global backdrop,” said Arif Habib Limited (AHL) in a report on Friday.

The central bank, in its previous MPC, decided to keep its benchmark policy rate unchanged at 10.5%. The decision was against market projections, which expected a cut in the key interest rate.

AHL, in its report, noted that a flare-up of the US-Iran conflict has upset markets, sending oil and other commodities sharply higher and exerting pressure on financial markets worldwide.

SBP likely to cut policy rate in upcoming MPC meeting, say analysts

“Against this uncertain environment, the SBP is likely to maintain the status quo, preferring to wait and see how geopolitical developments unfold before adjusting policy,” said AHL.

The report shared that the outbreak of conflict in the Middle East has already pushed crude prices higher, which, if sustained, could weigh heavily on Pakistan’s external account, given the country’s reliance on imported energy.

“Estimates suggest that every $10 per barrel increase in oil prices could widen the current account deficit by around $2 billion annually. Headline inflation may also rise by roughly 0.4% directly, while indirect effects could be larger, pushing CPI further above the medium-term target range of 5-7%,” it said.

On the other hand, remittances from GCC countries, which account for roughly 50-55% of Pakistan’s total inflows, may provide some near-term support.

“In light of geopolitical tensions in the Middle East, expatriates may increase transfers home as a precautionary measure, with the upcoming Eid season further boosting inflows, cushioning the current account amid rising imported inflation,” it said.

SBP seen holding rates steady as the oil rally clouds inflation outlook

AHL, while citing its survey results, said that market sentiment ahead of the MPC strongly favours a pause. “Our survey result shows; 96% of participants expect the policy rate to remain unchanged, while only 4% anticipate a 50bps cut,” it said.

Similar views were expressed by Topline Securities, another brokerage house, in its report on Friday.

“Unlike the previous poll, where 80% were expecting a rate cut, now 92% are expecting status quo due to war like situation in region, which has jacked up Brent oil prices by 25% in the last 2-3 weeks,” said Topline.

It shared that of the remaining 8%, 6% are expecting rates to increase by 25-50bps, and 2% expect rates to increase by 50-100bps. While no one expects a rate cut.

“We also believe interest rates will remain unchanged as the impact of this regional war on domestic inflation in the form of rising oil prices and its possible shortage is yet to unfold. However, if this tense situation continues for a longer period, an interest rate hike to mitigate its impact cannot be ruled out,” it noted.

Topline attributed the shift in market perception to “regional tensions, inflation impact of rising oil and LPG prices, and to account for any possible devaluation of currency”.

All 10 analysts in a Reuters poll expect the SBP to hold the rate at 10.5%, after policymakers held the rate ​in January.

The central bank has cut the key rate by a cumulative ⁠11.5 percentage points since mid-2024, from a record high of 22%.

Escalating Middle East tensions ​after the US and Israel attacked Iran have raised the risk of disruption to shipping ​through the Strait of Hormuz and pushed oil-and-gas prices higher, adding to Pakistan’s import bill and inflationary pressures.

Analysts expect inflation to average 6%–8% in the coming months, but warned that higher oil prices could push it up ​further.

“Energy prices should dictate the policy rate trajectory. Inflation could average around 7% during ​the second half of FY26,” AKD Securities analyst Muhammad Aliv said.

Pakistan’s heavy reliance on imported fuel leaves ‌it ⁠vulnerable to global price shocks.

SBP holds policy rate at 10.5% in first 2026 MPC meeting

“Higher oil prices widen the trade deficit and pressure the rupee,” Waqas Ghani, head of research at JS Capital, said.

Ghani said every $10 per barrel increase in crude prices adds about 0.5 percentage points to inflation, which clocked in at 7% in ​February, jumping from 5.8% ​in January.

The SBP ⁠says it aims to maintain a positive real interest rate to anchor inflation expectations under Pakistan’s $7 billion IMF programme, though inflation could ​exceed its 5%–7% target range for a few months this year ​as growth ⁠picks up and imports widen the trade deficit.

Pakistan to get Saudi oil thru Red Sea port

Governor Jameel Ahmad told Reuters last month that policymakers remained focused on medium-term price stability, even as the economy was projected to grow 3.75%–4.75% in ⁠the financial ​year 2026, supported by stronger domestic demand and ​earlier monetary easing.

Analysts said external risks, including higher oil prices, rupee pressure and a widening trade deficit, could delay ​any move toward further monetary easing.

The Ministry of Commerce is the federal government agency responsible for trade, exports, imports, and implementation of trade policies. Exports: Textiles, leather, sports goods, and agricultural products (such as rice, fruits) are important export items while imports include oil, machinery, and chemicals. He further stated that Pakistan has signed several agreements with China, Sri Lanka, Malaysia, Iran, and the European Union, which have given Pakistani products access to the international market, especially the GSP+ status.

The Ministry of Commerce also works to facilitate inter-provincial trade and business within the country. E-Commerce Online trade is being promoted in Pakistan, which has vast potential. Organisations Trade Development Authority of Pakistan (TDAP), Chambers of Commerce, and other institutions work under this sector. The objectives are to increase the country’s economy, increase exports and balance imports, reduce business costs, and increase market access for Pakistani products at the international level.

Copyright Business Recorder, 2026

The Wall Street Journal reported on Monday that U.S. President Donald Trump told aides he was willing to end the military campaign against Iran even if the Strait of Hormuz remained largely closed, soothing some investor nerves.

The month-long conflict has battered global markets and left the S&P 500 and the Dow on track for their largest monthly falls since September 2022. The benchmark S&P 500 was also headed for its worst quarter since 2022.

Oil prices were volatile on Tuesday, but were headed for a record monthly gain. The S&P 500 energy index has gained more than 11% so far in March, the only sector set to end the month in positive territory. It would also be the sector’s biggest quarterly gain on record.

“The move in markets is reflecting what traders want to see, what they hear. They would like to hear that resolution to this is quick,” said Mark Malek, CIO at Siebert Financial.

Malek said oil prices were still high because the Strait of Hormuz was closed and that would ultimately “cause damage” to the economy.

The S&P 500 technology index added 2% after facing a selloff this quarter, driven by concerns about lofty capital expenditure plans. Software stocks were hit by worries over AI-driven disruption to their services.

Coreweave rose 8.4% after securing an $8.5 billion loan to expand AI infrastructure. Marvell Technology added 6.8% after Nvidia invested $2 billion in the firm.

A 3.9% rise in Meta Platforms and Alphabet’s 2.5% gain lifted the communication services index up 2.2%.

Nine out of 11 major S&P 500 sectors were in the green.

At 10:05 a.m. ET, the Dow Jones Industrial Average rose 627.92 points, or 1.39%, to 45,844.06, the S&P 500 gained 103.78 points, or 1.64%, to 6,447.50 and the Nasdaq Composite gained 432.71 points, or 2.08%, to 21,227.35.

Last week, the Dow and the Nasdaq ended 10% below their record high closes, confirming a correction. The small-cap Russell 2000 confirmed it earlier this month.

JOLTS data for February showed job openings fell to 6.882 million, slightly below estimates of 6.918 million, while consumer confidence came in above estimates.

Comments from Fed policymakers, including Austan Goolsbee and Michelle Bowman, will also be parsed for any clues on the monetary policy path.

The oil spike stemming from the Iran conflict has revived inflation worries, prompting money market participants to price out any easing from the Fed this year, compared with two cuts expected before the war broke out, per CME Group’s FedWatch Tool.

Among other movers, McCormick shares fell 6%. Unilever agreed to separate its food unit and merge it with McCormick in a cash-and-stock deal, valuing the spice maker at about $44.8 billion.

Constellation Energy dipped 7.1% after forecasting 2026 profit below Wall Street expectations.

Advancing issues outnumbered decliners by a 5.23-to-1 ratio on the NYSE and by a 4.21-to-1 ratio on the Nasdaq.

The S&P 500 posted 3 new 52-week highs and 3 new lows, while the Nasdaq Composite recorded 19 new highs and 85 new lows.

Financial markets are seeking more clarity on the status of communications between Washington and Tehran as Trump has suggested a ceasefire could be reached quickly, but also reportedly said the U.S. could seize Kharg Island.

Iran has described U.S. proposals to end the war as “unrealistic, illogical and excessive.”

Dubai’s main share index dropped 1.2%, dragged down by a 2.9% slide in blue-chip developer Emaar Properties and a 2.5% decrease in major bank Emirates NBD .

In Abu Dhabi, the index lost 0.7%, hit by a 1.3% slide in Abu Dhabi Commercial Bank and a 4.9% plunge in Abu Dhabi Ship Building .

Meanwhile, shares in Fertiglobe , a producer of ammonia and urea, jumped 7%.

Emirates Global Aluminium, the Middle East’s largest producer of the metal, said on Saturday that its Al Taweelah production base in the UAE had suffered significant damage in Iranian missile and drone attacks. Aluminium Bahrain (Alba) , which operates the world’s largest single-site smelter, said on Sunday it was assessing damage from the strikes. Alba shares were down 0.1%.

GCC stock markets may remain under pressure in the near term as geopolitical uncertainty keeps sentiment fragile and volatility elevated, said Daniel Takieddine, Co-founder and CEO, Sky Links Capital Group.

“Elevated oil prices may provide a partial buffer, but constrained export volumes could limit the extent of this support.”

Saudi Arabia’s benchmark index advanced 0.8%, led by a 1.4% rise in Al Rajhi Bank  and a 1.1% increase in oil giant Saudi Aramco.

Elsewhere, ADES Holding added 1.7%, after the oil drilling group beat analyst expectations with a 2% rise in annual net profit and reiterated its strong growth forecast for this year despite some rig suspensions last year and recent halts due to the war.

Saudi crude exports redirected from the Strait of Hormuz to the Yanbu port in the Red Sea reached 4.658 million barrels per day last week, according to Kpler data, easing some concerns around supply disruption.

The supportive backdrop of higher oil prices is helping to underpin the stock market, particularly as the country sustains exports through the Yanbu port, said Takieddine.

Oil prices extended gains on Monday, with Brent headed for a record monthly rise.

The Qatari index declined 0.9%, with the Gulf’s biggest lender Qatar National Bank retreating 1.1%.

Outside the Gulf, Egypt’s blue-chip index finished 2.6% lower.

The euro zone’s central bank has been on hold since ending a year-long run of rate cuts in June, and surprisingly resilient growth coupled with easing price pressures have taken nearly all pressure off policymakers to provide any further support.

In a statement, the ECB acknowledged continued uncertainties around global trade policy and geopolitical tensions but said an updated assessment still saw inflation stabilising at its 2 percent target in the medium term.

“We are in a broadly balanced situation at the moment,” ECB President Christine Lagarde told a press conference of upside and downside risks to that outlook, reaffirming that monetary policy remained in a “good place”.

Asked what impact on its outlook last week’s dollar tumble and rebound might have, Lagarde said the rate-setting Governing Council had discussed the matter but noted that dollar depreciation was not new and went back as far as March 2025.

“In the last few weeks, in fact since the summer, it has fluctuated in a range,” she said, adding policymakers had therefore concluded that foreign exchange rate moves since last year were “incorporated in our baseline”. A strong euro relative to the dollar lowers import costs, especially for energy, curbing inflation at a time when it is already below target, if only temporarily.

With the dollar dip unwinding in recent days, the euro is actually weaker on a trade-weighted basis than at the ECB’s December meeting, reinforcing market and economist expectations for no interest rate changes in 2026, followed by some policy tightening later in 2027.

Lagarde repeated the bank’s official line that policy would be data-dependent and that it had no pre-determined rate path.

"Economic activity has been expanding at a solid pace," Fed policymakers said in the statement after voting 10-2 to hold the U.S. central bank's benchmark interest rate in the 3.50%-3.75% range following a two-day meeting.

Both Governor Christopher Waller, a contender to replace Fed Chair Jerome Powell when his term as central bank chief ends in May, and Governor Stephen Miran, on leave from his job as an economic adviser at the White House, dissented in favor of a quarter-percentage-point rate cut.

The Fed's statement offered no hint about when another reduction in borrowing costs might come, noting that "the extent and timing of additional adjustments" to the policy rate would depend on incoming data and the economic outlook.

Meanwhile, inflation "remains somewhat elevated," the central bank said, while the job market has "shown some signs of stabilization."

READ MORE: US Fed expected to keep rates steady as it opens key meeting

Though the Fed noted that "job gains have remained low," it also removed language from its prior statement saying that downside risks to employment had risen - an indication policymakers as a group are becoming less worried about a rapid downturn in the labor market.

Fed policymakers ahead of this week's meeting had largely characterized the job market as roughly in balance, with smaller gains matching the slower growth in the numbers of those seeking employment as a result of the Trump administration's stricter immigration policies. The unemployment rate in December fell to 4.4%.

Powell is scheduled to hold a press conference at 2:30 p.m. EST (1930 GMT) to discuss the policy statement and economic outlook.

Fed remains divided

The decision to maintain borrowing costs at their current level puts the Fed's current monetary easing cycle, begun near the end of the Biden administration and continued after a pause of roughly nine months during President Donald Trump's second term in the White House, on hold again after three quarter-percentage-point reductions at the central bank's final three meetings of 2025.

The rate cut at the December 9-10 meeting left the policy-setting Federal Open Market Committee unusually divided.

Three of its 12 voting members dissented, with one in favor of an even deeper cut and two in favor of no reduction at all.

Those same divisions have carried into 2026, and recent economic data have done little to change the outlook for those officials most concerned that inflation is not progressing back to the central bank's 2% target, or for those more worried about a rise in the unemployment rate if credit conditions aren't loosened to encourage more spending and investment.

It's a debate that could shape the first weeks in office of whoever is named to replace Powell in the top Fed job, a decision that Trump is expected to announce soon. Powell's successor is expected to be in place to run the central bank's June 16-17 policy meeting. Investors currently expect the Fed to keep rates on hold until then.

The Fed voted 10-2 on Wednesday to keep the benchmark lending rate unchanged, prompting the US leader to renew his criticism of chairman Powell.

“Jerome ‘Too Late’ Powell again refused to cut interest rates, even though he has absolutely no reason to keep them so high,” Trump wrote on his Truth Social platform.

He called Powell a “moron,” adding: “The Fed should substantially lower interest rates, NOW!”

READ MORE: Fed holds rates steady, sees ‘elevated’ inflation and stabilizing job market

While Trump said that Powell “admits inflation is no longer a problem or threat,” the central bank in a statement Wednesday noted that “inflation remains somewhat elevated.”

Trump’s lengthy social media post also comes as his administration has escalated attacks on the central bank.

The president has been seeking to oust Fed Governor Lisa Cook over allegations of mortgage fraud, while the Department of Justice has launched a probe into Powell over renovations at the bank’s headquarters – prompting a rare rebuke from the Fed chief.