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Arab News
4 days ago
- Business
- Arab News
Pakistan holds interest rate at 11% as Mideast conflict poses new economic challenges
KARACHI: Pakistan's central bank kept its key interest rate unchanged at 11% on Monday, maintaining a cautious stance, as financial analysts warn heightened Middle East tensions and volatile global oil prices add new risks to the country's fragile external sector and inflation rate. A Reuters poll released earlier on Monday had shown analysts revising their expectations for a rate cut in light of Israel's military strikes on Iran that began on Friday and have since intensified, pushing up global commodity prices. 'The [Monetary Policy] Committee noted some potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows. Moreover, some of the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports,' the central bank said, announcing its decision to leave the rate unchanged. 'In this regard, the Committee deemed today's decision appropriate to sustain the macroeconomic and price stability.' Monday's decision comes days after Pakistan announced its Rs16.7 trillion ($62 billion) annual budget targeting 4.2% growth, up from a provisional estimate of 2.7% for the current year. The MPC noted that despite the widening trade deficit, the current account remained broadly balanced in April, and foreign exchange reserves rose to $11.7 billion as of June 6 after the completion of the first review under the International Monetary Fund's Extended Fund Facility. The country expects $14 billion foreign exchange reserves by the end June. The bank paused its policy rate easing cycle in March, following cumulative cuts totaling 1,000 basis points from a record high of 22%, and resumed it with a 100-basis-point reduction in May. Inflation in Pakistan has slowed markedly since peaking at around 40% in May 2023. However, last month it rose to 3.5% year-on-year, above the finance ministry's projection of up to 2%, partly due to the fading of favorable base effects. The central bank projects average inflation between 5.5% and 7.5% for the fiscal year ending this month. 'Going forward, inflation is expected to trend up and stabilize in the target range,' the MPC said. The escalating tensions in key oil-producing regions have triggered a sharp surge in global oil prices with brent, West Texas Intermediate (WTI) and Arab Light crude oils showing a 12% week-on-week increase and daily spikes exceeding 6%, Arif Habib Ltd, a Karachi-based research firm, said in its latest note. 'WAIT-AND-SEE' STANCE Amreen Soorani, the head of research at Al Meezan Investment Management, said the SBP's decision was primarily driven by emerging geopolitical risks that had affected international oil prices. 'Even with substantial improvements in Pakistan's inflation and external account, the central bank seems to have taken a cautious 'wait-and-see' stance,' she told Arab News. The regional tensions, she said, were posing potential challenges to Pakistan's balance of payment and inflation rate. Cash-strapped Pakistan spent $17 billion on oil imports last year. Soorani said petroleum was a major driver of Pakistan's trade deficit, accounting for approximately 30% of all imports and consuming around 55% of export proceeds. 'All else being equal, a $5 per barrel increase in average oil prices for the year would worsen our trade deficit by an estimated $900 million annually,' the analyst said. Pakistan is closely watching the global oil market, where brent and WTI crude traded at around $73.5 and $70.5 a barrel on Monday and fell 1% after opening lower in the Western markets, Finance Adviser Khurram Schehzad said. 'Global calls for increasing supplies is (are) one of the reasons among potential resolve of the Israel-Iran conflict by the US,' Schehzad said. Muhammad Waqas Ghani, head of research at JS Global Capital Ltd., said the SBP's current monetary stance was aligned with the IMF's recommendation to Islamabad to maintain a sufficiently tight monetary policy to anchor inflation. 'Additionally, the committee may have preferred to wait for greater clarity on the budget measures and their potential impact on inflation dynamics,' he told Arab News. STOCKS GAIN, RUPEE DECLINES Pakistani stocks gained by 82 points to close at 122,225 points 'despite geopolitical risk amid speculations over SBP policy announcement,' Ahsan Mehanti, chief executive officer at Arif Habib Commodities Ltd, said. The rupee declined for the fifth consecutive session and inched down 0.07% to Rs283.17 per dollar. Qazi Owais Ul Haq, a currency dealer at Arid Habib Ltd. said Pakistan's currency was 'feeling the heat' as regional tensions surge. 'They are trying to hold the rate but as a third-world country war affects us,' Haq told Arab News. Pakistan's top trade body, the Federation of Pakistan Chamber of Commerce & Industry (FPCCI) and the Karachi Chamber of Commerce and Industry, (KCCI) said the central bank's decision to maintain the policy rate at 11% was disappointing 'The SBP has not only ignored market signals but has also dampened business sentiment at a time when the economy urgently requires a boost,' KCCI President Muhammad Jawed Bilwani in a statement.
CNA
4 days ago
- Business
- CNA
Pakistan holds key rate at 11% as geopolitical tensions stoke inflation risks
ISLAMABAD :Pakistan's central bank kept its key interest rate unchanged at 11 per cent on Monday, in line with expectations, as the conflict between Israel and Iran and volatile global oil prices added upside risks to inflation. The State Bank of Pakistan briefly paused its easing cycle in March after cutting rates by 10 per centage points from a record high of 22 per cent in June 2024. The SBP announced another 100-basis-point cut in May, bringing the key rate to 11 per cent. Eleven out of 14 analysts in a Reuters poll had forecast the SBP would hold the rate steady, citing inflationary risks from Israel's recent military strikes on Iran and their impact on global commodity markets. The bank's Monetary Policy Committee said in a statement announcing the decision that it expected some near-term volatility in inflation and for it to gradually to edge up and stabilise in the 5-7 per cent target range. "This outlook, however, remains subject to multiple risks emanating from potential supply-chain disruptions from regional geopolitical conflicts, volatility in oil and other commodity prices, and the timing and magnitude of domestic energy price adjustments," the MPC said. Headline inflation rose to 3.5 per cent in May, exceeding the finance ministry's projection of up to 2 per cent. The central bank expects average inflation to range between 5.5 per cent and 7.5 per cent for the current fiscal year, which ends this month. "The decision to hold rates was not surprising given the uncertain geopolitical outlook with oil prices spiking around 15 per cent," said Mustafa Pasha, Executive Director at Karachi-based Lakson Investments. "Additionally, it gives the SBP time to assess the impact of the budget and upcoming gas/electricity tariff revisions on inflation and the external account." The decision also comes on the heels of Pakistan's contractionary budget, in which it cut total spending by 7 per cent and set a GDP target of 4.2 per cent for fiscal year 2025-26. The government said the $350 billion economy is stabilising under a $7 billion IMF programme, though analysts remain wary of external and fiscal pressures.
Bloomberg
4 days ago
- Business
- Bloomberg
Pakistan Keeps Key Rate Steady as Israel-Iran Tensions Rise
Pakistan's central bank kept its benchmark interest rate unchanged, opting for caution as inflation picked up last month and the Israel-Iran conflict added uncertainty to the economic outlook. The State Bank of Pakistan held the target rate at 11%, the central bank said in a statement on Monday. A majority of the 40 analysts surveyed by Bloomberg had predicted the move.
Zawya
10-06-2025
- Business
- Zawya
Pakistan posts current account surplus of $1.9bln in July-April period
Islamabad: Pakistan recorded a current account surplus of 1.9 billion U.S. dollars during July to April of the fiscal year 2024-25, reversing a deficit of 1.3 billion US dollars in the same period last year, the Pakistan Economic Survey 2024-25 showed on Monday. The improvement was attributed to robust inflows of workers' remittances, which reached a record 31.2 billion dollars during the ten-month period, representing a 31 percent year-on-year increase. A monthly high of 4.1 billion dollars was recorded in March 2025. The country's foreign exchange reserves rose to 16.6 billion dollars as of May 30, including 11.5 billion dollars held by the State Bank of Pakistan, the survey said. Export earnings stood at 26.9 billion dollars, growing by 7 percent year-on-year, while imports rose by 11.8 percent to 48.3 billion dollars, resulting in a trade deficit of 21.3 billion dollars. The Information Technology sector contributed significantly to external receipts, with export earnings of 3.1 billion dollars during the period, including 400 million dollars generated by freelancers. The rupee remained stable at 278.72 against the U.S. dollar, supported by improved external sector indicators. © Dar Al Sharq Press, Printing and Distribution. All Rights Reserved. Provided by SyndiGate Media Inc. (
Arab News
22-05-2025
- Business
- Arab News
Pakistan FY26 budget to continue fiscal consolidation, focus on IMF guidelines — analysis
KARACHI: Pakistan will continue fiscal consolidation, focus on IMF guidelines and bring untaxed and low tax areas into the tax net as it announces its federal budget for fiscal year 2025-26 next month, a top Pakistani brokerage house said in a budget review. Islamabad is currently holding budget talks with the IMF, which earlier this month approved a loan program review for Pakistan, unlocking a $1 billion payment which the State Bank of Pakistan said had been received. A fresh $1.4 billion loan was also approved under the IMF's climate resilience fund. 'We expect this budget to continue fiscal consolidation, focus on IMF guidelines and bring untaxed/low tax areas in tax net,' Topline Securities said in a budget review. The brokerage house said the government had committed with the IMF to continue with fiscal consolidation in the FY26 budget to ensure debt sustainability. 'The government targets primary surplus of 1.6 percent of GDP (vs. 2.0-2.1 percent of GDP in FY25), a surplus for the third consecutive year after two decades. The government has also committed to use any windfall dividend expected from the central bank over and above 1 percent of GDP to retire debt,' the review said. The analysis predicted the Federal Board of Revenue's FY26 tax revenue growth target could be the lowest in six years. 'FBR revenue target is expected at Rs14.1-14.3 trillion, up 16-18 percent YoY, which will be the lowest percent growth in the last 6 years,' it said. The FBR has achieved a five-year revenue Compound Annual Growth Rate of 25 percent from FY21-25. 'We believe, out of this required 16-18 percent growth, approximately 12 percent would be achieved through autonomous growth driven by real GDP growth of 3.6 percent and inflation of 7.7 percent. The remaining 4-5 percent growth translates into additional tax measures of Rs500-600 billion,' the analysis estimated. Revenue measures expected include a change in the GST calculation price of sugar, the likely introduction of taxes on pension, retailers and wholesalers and a likely increase in federal excise duty on cigarettes, fertilizer products and pesticides by 500bps. A tax on the income of freelancers, vloggers and YouTubers is also expected. 'Government is expected to announce some relief measures namely (1) extension in exemption limit on salary or reduction of tax rate by 2.5 percent for all salary brackets, (2) rationalization of duties on trade, (3) likely housing finance subsidy, (4) inflation adjustment in minimum salary and unconditional cash transfer, and (5) some rationalization in super tax,' the analysis said. It said the government would reportedly set a GDP growth target of 3.5-4.5 percent 'while we expect GDP growth target for FY26 at 3.5-4.0 percent led by services.' The analysis predicted the budget was likely to be neutral for the stock market in the short-term, neutral to positive for cement, steel, oil and gas, consumers, and independent power producers, and neutral for oil marketing firms, IT, banks, pharma, autos and textile. Pakistan's 37-month $7 billion IMF loan program, approved on Sept. 25, 2024, aims to build resilience and enable sustainable growth. Key priorities include entrenching macroeconomic sustainability through implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base; advancing reforms to strengthen competition and raise productivity and competitiveness; reforming state-owned enterprises and improving public service provision and energy sector viability; and building climate resilience. Highlighting progress in Pakistani policies to stabilize the economy, the IMF said earlier this month when it approved the latest tranche that Pakistan's fiscal performance had been strong, with a primary surplus of 2.0 percent of GDP achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 percent of GDP. 'Inflation fell to a historic low of 0.3 percent in April, and progress on disinflation and steadier domestic and external conditions, have allowed the State Bank of Pakistan to cut the policy rate by a total of 1100 bps since June 2025,' the IMF added. 'Gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term.'
