Pakistan's central bank faces a familiar but intensified dilemma as it prepares to announce its monetary policy decision on Monday. With the Gulf conflict driving oil prices above $100 per barrel and global uncertainty at a peak, the State Bank is expected to keep its benchmark interest rate unchanged at 11.5 percent, prioritizing stability over growth in a fragile economic environment. Main Developments The State Bank of Pakistan is widely projected to hold its policy rate steady at Monday's monetary policy meeting, according to surveys by brokerage houses where over 90 percent of stakeholders expect no change. Only a small fraction of respondents anticipate a modest increase. Analysts tracking the economy say the central bank is prioritizing macroeconomic stability over growth amid the Gulf war's ripple effects. The conflict has pushed global oil prices above $100 per barrel, intensifying inflationary pressures worldwide and complicating Pakistan's efforts to keep average CPI inflation within the 7–8 percent range for fiscal year 2027. Read also: 3 Ways Gulf War and Crypto Are Reshaping Pakistan's Dollar Flow The private sector, meanwhile, continues to struggle for credit. During fiscal year 2026, banks invested Rs5.9 trillion in government securities while lending only Rs1.4 trillion to private businesses, most of it for short-term working capital. This lopsided flow reflects both banks' risk aversion and the central bank's cautious stance. Background The State Bank's current policy rate of 11.5 percent is the result of a series of adjustments over the past year. The central bank cut the rate by 50 basis points to 10.5 percent on December 15, 2025, then reversed course and raised it by 100 basis points on April 27, 2026. Since then, it has held the rate unchanged despite persistent calls from trade and industrial sectors for a cut of at least 200 basis points. The Gulf war erupted with US strikes on Iran and Iranian retaliation targeting American bases in several Gulf countries. This escalation sent global oil prices soaring, creating immediate headwinds for oil-importing nations like Pakistan, which relies heavily on imported energy to fuel its economy. Trade and industrial groups have repeatedly urged the central bank to adopt a more pro-growth stance by lowering interest rates to boost liquidity and private-sector lending. However, banks have remained reluctant to increase lending to businesses, preferring the safety of government securities. Why It Matters The decision to keep rates unchanged carries significant implications for Pakistan's economic trajectory. Lower rates could fuel inflation, which the government hopes to contain within the 7–8 percent range despite elevated oil prices. A rate hike, on the other hand, would further dampen economic growth, which the World Bank projects at below 4 percent for FY27—lower than the government's target of over 4 percent. The Gulf conflict's trajectory—whether it escalates or de-escalates—will shape the outlook for many developing economies, including Pakistan. Elevated oil prices have the potential to derail growth across multiple countries, making the central bank's cautious stance a defensive measure against external shocks beyond its control. Financial experts say the State Bank's policy decision will largely depend on the evolving regional situation, with an unchanged rate seen as the safest bet in a highly uncertain environment. What's Next The State Bank's monetary policy committee will announce its decision on Monday, July 27. All eyes will be on the accompanying statement for signals about future policy direction, particularly regarding the bank's assessment of inflation risks and growth prospects. Analysts will closely monitor developments in the Gulf conflict, as any escalation or de-escalation could shift the central bank's stance in subsequent meetings. The trade and industrial sectors, meanwhile, are likely to continue pressing for rate cuts, though their chances appear slim as long as uncertainty persists.