• Pakistan's central bank is expected to hold its policy rate at 12%.
• The Israel-Iran conflict has prompted analysts to revise their rate cut predictions.
• Inflation concerns arise due to rising global commodity prices amid geopolitical tensions.
• GDP growth is projected at 4.2% despite fiscal and external challenges.
• Pakistan's economy is stabilizing under a $7 billion IMF bailout.

The State Bank of Pakistan (SBP) is anticipated to maintain its policy rate at 12% during the upcoming monetary policy meeting, as suggested by a recent Reuters poll. The expectation comes in light of the Israel's military actions towards Iran, which have shifted analysts' perspectives from a potential rate cut to concerns over inflation driven by increasing global commodity prices. Eleven out of fourteen respondents in the poll predict no change in the benchmark rate, whereas two foresee a 100 basis-point decrease and one a 50 basis-point reduction, according to Channel News Asia, Reuters, and Dawn.

The recent strikes by Israel on Iran have sparked fears of an escalating regional conflict, resulting in a sharp increase in oil prices. This increase poses a significant risk for Pakistan due to its reliance on imported commodities, potentially reigniting inflationary pressures that had begun to show signs of easing. Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, highlighted that “the resultant higher import bill could also threaten external sector performance and bring pressure to the exchange rate,” emphasizing the delicate balance the SBP must maintain, according to Channel News Asia, Reuters, and Dawn.