SBP Maintains Interest Rate at 11% due to Iran and Israel War

The State Bank of Pakistan has held the interest rate steady at 11% due to the ongoing war between Iran and Israel in the Middle East. The State Bank of Pakistan states that now inflation is bound to go up because the government of Pakistan has decided to increase the petroleum levy and because of the Iran-Israel war, petrol prices have gone up globally. Therefore, the SBP decided to maintain the interest rate for this meeting.

It was expected by some analysts that SBP would lower interest rates due to core inflation having cooled down. However, many analysts also warned that the State Bank of Pakistan is in a tight situation and would be handicapped if they lowered the inflation this time because imports are rising at a rapid pace. They maintained and said the interest rate should hold at 11% because the government of Pakistan would not want another current account deficit this time due to a shortage of finance and loans. 

It is true that the government of Pakistan is struggling to get finance through friendly countries and relying on rollovers, which is not a safe way to go. If there is a current account deficit, then it has to be adjusted from forex reserves, or the Pakistani government would have to borrow. Likewise, this is the reason to hold the interest rate at 11% for now. Moreover, another major reason was the Iran-Israel war, which has increased petrol prices to above $74 per barrel for crude oil. The State Bank of Pakistan is anticipating that inflation will either increase or pause at 7%; then they can judge the situation in the future.