- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 12%
The Monetary Policy Committee of the State Bank of Pakistan left the policy rate unchanged at 12 percent on 10 March 2025, judging the current forward-looking real rate to be “adequately positive” after February headline inflation slowed to 1.5 percent year on year amid softer food and energy prices, even as core inflation stays elevated and vulnerable to renewed cost pressures while activity indicators point to a further recovery. The hold follows a 100-bp cut in January that took the rate to its present level. The MPC noted a January current-account swing to a USD0.4 bn deficit and a drop in foreign-exchange reserves, though it still expects the FY25 external balance to lie between a 0.5 percent-of-GDP surplus and deficit and projects reserves to exceed USD13 bn by June as debt repayments ease and official inflows arrive. Domestic GDP growth is still seen at 2.5–3.5 percent in FY25 despite a 1.9 percent contraction in large-scale manufacturing in H1, while private-sector credit is expanding 9.4 percent. Global uncertainty from escalating tariffs has led many central banks to slow monetary easing. The Committee reaffirmed its commitment to a cautious stance aimed at returning inflation to the 5–7 percent target band and stressed the need for fiscal consolidation and stronger external buffers.
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.