Following the Monetary Policy Committee (MPC) meeting, the State Bank of Pakistan (SBP) has kept the key interest rate unchanged at 11%.
The decision was announced by SBP Governor Jameel Ahmed following the MPC meeting on Wednesday.
Addressing a press conference in Karachi, the SBP chief said that while inflation remained at its lowest in April, it rose slightly during May and June, driven largely by energy costs and the base effect.
The governor noted that inflation may rise moderately in the coming months due to continued pressures on energy prices.
On the external front, he said Pakistan’s exports have grown by 4%, adding that a rise in exports is essential to maintain current account stability.
The governor also confirmed a significant increase in worker remittances, which rose by $8 billion and contributed to keeping the current account in surplus.
Highlighting macroeconomic stability, he said the country met all its debt obligations on time and that foreign exchange reserves had increased by $5 billion even after making $26 billion in external payments.
The agricultural sector, he said, is also showing signs of recovery, which should support overall economic growth in the current financial year.
‘Structural reforms’
According to a statement issue by the central bank, the MPC noted that the inflation outlook has somewhat worsened in the wake of higher than anticipated adjustment in energy prices, especially gas tariffs.
“Nonetheless, inflation is projected to stabilise in the target range going forward,” it said, adding that economic activity was gaining further traction amidst the still-unfolding impact of the earlier reductions in the policy rate.
At the same time, the statement said, the Committee noted that the trade deficit is expected to widen further in FY26 amidst the pickup in economic activity and slowdown in global trade.
“Given this macroeconomic outlook and the emerging risks, the MPC considered today’s decision as necessary to ensure price stability,” it added.
The committee also noted key developments since its last meeting, saying that the SBP’s foreign exchange reserves crossed $14 billion on the back of improved financial inflows and a current account surplus.
Secondly, it said, the recent upgrade in Pakistan’s sovereign credit rating led to a decline in Eurobond yields and narrowed CDS spreads in international markets.
Moreover, inflation expectations increased slightly for consumers but declined for businesses in the latest sentiment surveys.
Lastly, the statement said, global oil prices remained volatile, whereas metal prices increased. “At the same time, the impact of global trade tariffs remained uncertain, prompting central banks to maintain their cautious monetary policy stance,” it added.
“In view of these developments and potential risks, the Committee assessed that the real policy rate should continue to be adequately positive to stabilize inflation in the target range of 5% to 7%.
Moreover, the committee reiterated its view that without structural reforms it would be difficult to achieve higher growth on a sustainable basis.
The decision came as the government pushes reforms under a $7 billion IMF programme and a contractionary budget to curb deficits.
In its Economic Outlook Update on Tuesday, the IMF cut its growth forecast for the fiscal year ending June 2026 to 3.6%, well below the government’s 4.2% target.
The SBP held rates in June after a 100-basis-points cut in May that resumed easing following a March pause.
Since June 2024, it has lowered its policy rate by 1,100 basis points from a record 22% as price pressures receded.
In a Reuters poll this week, all 15 analysts said they expected the SBP to ease, with nine forecasting a 50-basis-points cut, four predicting a deeper 100-basis-points reduction and two projecting a smaller 25-basis-points cut.
Headline inflation slowed to 3.2% in June and is projected at 3.5%–4.5% in July, within the SBP’s 5.5%–7.5% target range for the fiscal year ending June 2026.
The government says the economy has stabilised, but analysts warn growth remains fragile and global commodity price swings could still add pressure on prices and external balances.
— With additional input from Reuters