State Bank warns that Middle East conflict could push global energy prices higher, affecting Pakistan’s economic outlook.

The State Bank of Pakistan issued its biannual Monetary Policy Report (MRR) on Monday, warning that geopolitical developments in the Middle East could lift global energy and commodity prices beyond current expectations and affect the macroeconomic outlook. The report notes climate‑related risks, including evolving El Nino conditions and floods, and cautions that delays in structural reforms could weaken exports, slow productivity gains, and reduce growth capacity without creating inflationary or external account pressures. It says the outbreak of the Middle East conflict in late February triggered sharp rises in global energy prices, freight and insurance costs, and supply‑chain disruptions. Despite these shocks, fiscal discipline, such as timely domestic fuel price increases and targeted subsidies, helped moderate aggregate demand. The State Bank’s prudent tightening of monetary policy has helped limit the second‑round effects of the energy price shock and anchor inflation expectations. The government’s measures to conserve energy have kept demand‑side pressures muted. Inflation is expected to ease toward the upper bound of the target range by the end of fiscal year 2027. Economic growth is projected to remain between 3.5 % and 4.5 %. The current‑account deficit is expected to stay within 0 % to 1 % of GDP. Foreign‑exchange reserves are targeted at US$20.20 billion by December 2026 and are projected to rise further by the end of fiscal year 2027. The report also outlines multiple risks to the outlook, including changes to the monetary‑policy transmission mechanism, the central bank’s reaction function when facing supply‑side inflation, and evolving measures of inflation internationally and domestically.