Pakistan’s central bank is widely expected to maintain its benchmark interest rate at 12% when it meets on Monday, according to a Reuters poll geo.tv+15reuters.com+15dailytimes.com.pk+15. The rebound in oil prices following Israel’s strike on Iran has prompted analysts to reassess earlier expectations for a rate cut, raising concerns over imported inflation.

On Friday, Israel launched a preemptive strike targeting Iran’s nuclear facilities, missile production sites, and senior military figures, aiming to halt Tehran’s progression toward nuclear weaponry reuters.com+1dawn.com+1dawn.com.

Although several brokerages had initially anticipated a rate reduction, the heightened geopolitical volatility and rising crude costs have led 11 out of 14 analysts in the Reuters poll to expect no change. Only two anticipate a 100 bps cut and one a 50 bps reduction propakistani.pk+11reuters.com+11dawn.com+11.

“Upside risk to global commodity prices because of geopolitical tensions could reignite inflationary pressures,” highlighted Ahmad Mobeen from S&P Global Market Intelligence, noting that an elevated import bill risks straining the external sector and pressuring the exchange rate geo.tv+9reuters.com+9dawn.com+9.

Inflation in Pakistan has eased significantly from its peak of nearly 40% in May 2023, currently hovering around 3.5%, slightly above the finance ministry’s 2% projection—a shift partly due to fading base effects reuters.com+1dawn.com+1. For the fiscal year ending June, SBP forecasts average inflation of 5.5% to 7.5% thenews.com.pk+3reuters.com+3dawn.com+3.

The central bank paused its easing cycle in March after cumulative cuts totaling 1,000 bps from a peak of 22%, before implementing a 100 bps reduction in May tribune.com.pk+12reuters.com+12dawn.com+12.

This decision coincides with the unveiling of a tight federal budget that boosts defence spending by 20%, cuts overall expenditures by 7%, and sets a GDP growth target of 4.2%. The government credits the economy’s stabilisation to a $7 billion IMF bailout, which averted a potential default reuters.com+1dawn.com+1.

However, some analysts remain cautious. Abdul Azeem of Al Habib Capital Markets—who projects a 50 bps cut—argues that lower interest rates could help Pakistan achieve its 4.2% growth target and reduce debt servicing costs geo.tv+9reuters.com+9dawn.com+9.