- Decision
- Lower
- Rate change
- 50 bps
- policy rate
- 10.5%
The State Bank of Pakistan’s Monetary Policy Committee cut the policy rate by 50 bp to 10.5 % with effect from 16 December 2025, judging that headline inflation has averaged within the 5–7 % target in Jul-Nov FY26 while benign global commodity prices, anchored expectations and stronger high-frequency activity allow modest support for growth despite sticky core inflation and a still-challenging export outlook. After cumulative 150 bp of easing since January—including 100 bp in May following an earlier 100 bp cut in January—the real policy rate is deemed “adequately positive” to keep inflation in the 5–7 % band over the medium term. The committee signalled no change to its operating framework and again stressed coordination with fiscal policy. Headline inflation components are converging; the MPC still foresees a temporary rise above target late in FY26 before a retreat in FY27, while real GDP growth is now expected in the upper half of the 3.25–4.25 % FY26 range amid 4.1 % y/y Q1 LSM growth, firmer consumer sentiment and brisk private credit, although the latest labour survey shows a higher unemployment rate. Broad money growth accelerated to 14.9 % y/y by 28 November, fuelled by budgetary borrowing, and SBP profit transfers helped deliver Q1 fiscal surpluses despite slowing Federal Board of Revenue collections. Externally, the current-account deficit stood at USD 0.7 bn in Jul-Oct, remittances were resilient and foreign-exchange reserves rose above the December target to USD 15.8 bn, with the MPC projecting USD 17.8 bn by June 2026 even as soft exports and “fluid” global trade conditions pose risks. The statement highlights generally supportive commodity prices but acknowledges tight global financial conditions and tariff uncertainties, and reiterates that sustained policy prudence and structural reforms are essential for durable, higher growth.
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.