- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 11%
The Monetary Policy Committee of the State Bank of Pakistan kept the policy rate at 11 percent at its 27 October 2025 meeting, judging the real rate sufficiently positive to anchor inflation—even after headline CPI jumped to 5.6 percent in September while core inflation held at 7.3 percent—amid an improved growth outlook and milder-than-feared flood damage. After two 100 bp cuts in January and May, the policy rate has been steady at 11 percent through four consecutive meetings. The MPC noted a USD110 million current-account surplus in September that capped the Q1-FY26 deficit at USD594 million and, alongside net financial inflows, lifted foreign-exchange reserves to USD14.5 billion by 17 October, with reserves expected to reach USD15.5 billion by December and USD17.8 billion by June 2026. High-frequency data show resilient momentum—LSM up 4.4 percent y/y in July–August, broad-based gains in autos, cement and POL sales, and 17 percent private-sector credit growth—supporting a revised FY26 GDP projection in the upper half of 3.25–4.25 percent. Inflation is forecast to stay above the 5–7 percent target band for several months in H2-FY26 before retreating in FY27, with risks from volatile global commodity prices, energy adjustments and food supplies partly offset by easing inflation expectations. Reiterating the importance of strengthening external and fiscal buffers and sustaining coordinated policies and structural reforms, the Committee signalled that current settings remain appropriate while it monitors unfolding global and domestic uncertainties.
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.