Hold the Policy Rate at 10.5 Percent on 27 April 2026: Why War-Driven Supply Risks Now Outweigh the Case for Further Easing

Irem Batool, Amna Riaz and Shahzada M. Naeem Nawaz
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Irem Batool: Pakistan Institute of Development Economics, Islamabad
Amna Riaz: Pakistan Institute of Development Economics, Islamabad
Shahzada M. Naeem Nawaz: Pakistan Institute of Development Economics, Islamabad

No 2026:60, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: Executive Summary: Inflation has slightly re-accelerated, with CPI inflation rising to 7.3 percent year-on-year in March 2026 from 7 percent in February, and to 1.18 percent month-on-month. Core inflation (rural) has also edged up, but it remains 2.1 percent below the policy rate. At the same time, GDP growth has improved to 3.89 percent in Q2 FY2025-26. On the external side, conditions are relatively stable but not strong enough to comfortably absorb a fresh external shock. SBP reserves stood at $15.1 billion as of 17 April 2026. The ongoing Israel-US-Iran war has introduced a new layer of risk through oil prices, freight and insurance costs, and rising inflation expectations. In this context, a rate cut would be premature, while a hike would still be excessive. The most appropriate decision is therefore to keep the policy rate unchanged, with a cautious and mildly hawkish bias.

Pages: 8 pages
Date: 2026
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