- Decision
- Maintain
- Rate change
- 0 bps
- Policy rate
- 10.5%
The Monetary Policy Committee of the State Bank of Pakistan left the policy rate unchanged at 10.5 percent, judging the current real rate as “adequately positive” given headline inflation at 5.6 percent y/y in December, a stickier 7.4 percent core print and faster-than-expected growth momentum. After cumulative rate cuts of 250 bp during 2025, the Committee now prefers to pause while it monitors the impact of earlier easing. Implementation remains anchored at the existing rate corridor, with a separate move to lower banks’ average cash-reserve requirement to 5 percent to support credit. Domestically, Q1-FY26 GDP grew 3.7 percent y/y and full-year growth is projected at 3.75–4.75 percent; M2 expansion quickened to 16.3 percent and private-sector credit has risen PKR 578 bn so far this fiscal year. Externally, the current-account deficit stood at USD 1.2 bn in H1-FY26, while FX reserves reached USD 16.1 bn on 16 January and are expected to top USD 18 bn by June, keeping the full-year deficit within 0–1 percent of GDP. The statement notes IMF-flagged risks from tariff uncertainty and volatile global commodity prices but a slightly stronger global growth outlook. The MPC reiterated the need for prudent fiscal coordination and structural reforms, and projects inflation to stabilise inside the 5–7 percent target range in FY26-27, though near-term price risks remain.
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.