State Bank of Pakistan Keeps Interest Rate Unchanged, Cites Improving Growth Outlook

Strategic Insights -

The State Bank of Pakistan has maintained its key interest rate at 11 per cent for the fourth consecutive policy meeting, citing a milder-than-expected impact of recent floods on the economy. The decision follows a statement from the central bank that crop losses are expected to be manageable and supply disruptions have been minimal. Economic activity has shown significant growth, with high-frequency indicators pointing to a strong pickup. This improved growth outlook has led the bank to extend its pause in monetary easing, a decision that has been met with expectations from economists and financial market players.

Key Takeaways:

  • The State Bank of Pakistan has kept its key interest rate at 11 per cent for a fourth consecutive policy meeting.
  • The bank cites an improving growth outlook due to a milder-than-expected impact of recent floods on the economy.
  • Crop losses are expected to be manageable, and supply disruptions have been minimal.
  • Economic activity has shown significant growth, with high-frequency indicators pointing to a strong pickup.
  • The bank has extended its pause in monetary easing, a decision that has been met with expectations from economists and financial market players.
  • The central bank has revised up its gross domestic product projection for the fiscal year 2026 to the upper half of the earlier projected range of 3.25 per cent to 4.25 per cent.
  • The MPC viewed the real policy rate to be adequately positive to stabilise inflation within the target range of 5-7 per cent over the medium term.
  • The committee reiterated the important role of continued build-up in external and fiscal buffers to absorb future shocks and in facilitating the ongoing pickup in economic activity.

Statistics:

  • Interest rate remains unchanged at 11 per cent.
  • The bank has lowered rates by 1,100 basis points (bps) since June 2024.
  • Revised up gross domestic product (GDP) projection for the fiscal year 2026 to the upper half of the earlier projected range of 3.25 per cent to 4.25 per cent.
  • Headline inflation rose significantly to 5.6 per cent in September from 3.0 per cent in the previous month.
  • Current inflation is likely to surpass the upper bound of the target range for a few months in the second half of FY26.
  • Inflation expectations of consumers and businesses eased according to the latest surveys.

Sources:

  • "State Bank maintains key interest rate at 11% - Profit by Pakistan Today".
  • Monetary Policy Committee Statement, State Bank of Pakistan (2023).