Will inflation drop in Pakistan after Iran-US deal: Here's what Aurangzeb says

Finance Minister Muhammad Aurangzeb has expressed optimism about Pakistan’s economic outlook, stating that a sustained US-Iran peace agreement and lower global oil prices could help reduce inflation and support stronger economic growth in the coming fiscal year.

Speaking in ARY News program Khabar, Muhammad Aurangzeb said the Pakistan government had successfully managed the immediate economic consequences of the recent regional conflict, ensuring that there were no fuel shortages, supply disruptions, long queues or significant law-and-order issues.

The minister noted that earlier this year, economic institutions, including the Ministry of Finance, the Ministry of Planning and the State Bank of Pakistan, had expected the economy to grow between 3.75 and 4.75 per cent during the current fiscal year. However, prolonged regional tensions over recent months had adversely affected economic activity, resulting in growth slowing to approximately 3.7 per cent.

Muhammad Aurangzeb said inflation had also been affected by rising imported costs, particularly during March and April, when price pressures increased and inflation briefly returned to double-digit levels. These developments contributed to the State Bank’s decision to maintain a relatively high policy rate, which currently stands at 11.5 per cent.

Looking ahead, the finance minister said the government’s economic projections for the next fiscal year—including a growth target of 4 per cent and an inflation target of 8.2 per cent—had been formulated while taking into account the potential economic risks arising from continued conflict.

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However, he argued that a durable ceasefire, followed by a broader peace framework, could improve the outlook considerably. According to Aurangzeb, declining crude oil prices and improving market sentiment are expected to ease inflationary pressures while strengthening both the country’s fiscal position and external accounts.

“If current trends continue, inflation could fall below our existing target,” he said, adding that earlier assessments by the State Bank had projected inflation within a range of six to seven per cent.

Muhammad Aurangzeb cautioned that some challenges remain, particularly due to damage to energy infrastructure and disruptions to supply chains caused by the conflict. While these effects may persist for several months, he believes their impact will gradually diminish as stability returns.