- Decision
- Lower
- Rate change
- 100 bps
- policy rate
- 12%
The Monetary Policy Committee of the State Bank of Pakistan cut the policy rate by 100 bp to 12.0 percent, effective 28 January 2025, citing a continued fall in headline inflation to 4.1 percent y/y in December, easing core pressures and moderate domestic demand, while judging that a still-positive real policy rate is consistent with returning inflation to the 5–7 percent target range. The MPC noted Q1-FY25 GDP growth slowed to 0.9 percent versus 2.3 percent a year earlier, but high-frequency indicators—such as stronger automobile, petroleum and fertilizer sales—signal a gradual recovery, and full-year growth is still seen at 2.5–3.5 percent. The current account recorded a USD0.6 bn surplus in December, lifting the H1-FY25 surplus to USD1.2 bn; despite lower financial inflows and hefty debt repayments that trimmed foreign-exchange reserves, the committee expects planned inflows and a balanced external position to raise reserves above USD13 bn by June 2025. Global oil-price volatility and a more uncertain international policy backdrop were flagged as key external risks. The MPC pledged to maintain a cautious stance, warning that near-term inflation could rise toward the upper end of the target band later in FY25 and highlighting risks from commodity prices, energy tariffs and fiscal measures.
Rate evolution
The State Bank of Pakistan’s policy rate rose by a net 50 basis points over the period, moving from a prolonged hold at 11 percent to a 50 basis point cut in December 2025, a reversal to 11.5 percent in April 2026 and holds at that level in June, July and September. Through October 2025, the Monetary Policy Committee held at 11 percent as inflation stayed moderate and core inflation eased, even as activity recovered and it flagged widening trade deficits, weak inflows, energy-price risks, commodities and flood-related shocks. The December cut reflected inflation averaging within the 5 to 7 percent target range, relatively benign commodity prices and anchored expectations, with the Committee seeing room to support sustainable growth despite sticky core inflation and a difficult export environment.
It held at 10.5 percent in early 2026 as stronger domestic momentum met higher geopolitical uncertainty over energy costs and supply disruptions, before raising the rate by 100 basis points in April to keep expectations anchored and contain second-round effects after inflation and core inflation rose, with inflation projected to stay above the 5 to 7 percent range for most of FY27. The Committee held the policy rate at 11.5 percent on June 15, judging the stance appropriate to guide inflation towards the target range over the medium term, and again on July 27 as lower global oil prices, moderating inflation and contained external pressures improved the outlook, though renewed regional conflict kept risks elevated. On September 14, it maintained the rate at 11.5 percent as headline inflation rose to 11.1 percent in August from 9.2 percent in July, global commodity prices increased and supply disruptions persisted amid the intensifying Middle East conflict, while external pressures remained contained and activity began to recover, with the Committee judging the stance appropriate despite increased uncertainty.