Policy rate hike unlikely in final FY26 review

KARACHI: The grounds for an increase in the policy rate have largely disappeared ahead of the State Bank of Pakistan’s (SBP) upcoming monetary policy announcement, as global oil prices have either remained stable or eased despite heightened tensions in the Gulf, market participants said. The Monetary Policy Committee (MPC) is scheduled to meet on June 15 for what will be the final policy review of FY26. The only increase in the policy rate during the current fiscal year came in the previous review on April 27, when the SBP raised the benchmark rate by 100 basis points to 11.5 per cent. The increase was attributed to geopolitical tensions following the conflict in April, which pushed oil prices higher and disrupted global supply chains. However, analysts said developments over the past month have reduced concerns over a prolonged conflict. Prospects for a deal between the US and Iran have improved, while a ceasefire remains in place despite sporadic attacks by both sides. Iran also targeted US bases in several Gulf countries, although reports of ongoing diplomatic efforts have helped calm markets. MPC meets on Monday amid easing Gulf tensions and oil prices Supply chain conditions have also improved over the past month, according to market sources. While they did not entirely rule out the possibility of renewed hostilities, they said the likelihood of a broader conflict appeared lower than that of a diplomatic settlement. They noted that unresolved disputes involving Israel, including its continued presence in occupied territories and positions in Lebanon, remained a source of uncertainty. “Before deciding on rates, the MPC will likely assess several factors, including currency stability and the external account,” said Faisal Mamsa, chief executive officer of Tresmark. Mr Mamsa said Pakistan’s recent economic stability had been driven more by strong inflows and the accumulation of foreign exchange reserves than by interest rates. He added that monetary policy had lim