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Economic growth

State Bank of Pakistan Keeps Policy Rate Unchanged Amid Economic Optimism

Strategic Insights

— 1 min read

The Monetary Policy Committee of the State Bank of Pakistan has decided to maintain the policy rate at 11 percent, citing moderate inflation and improving economic growth prospects. The Committee's decision was influenced by the upward trend in inflation expectation, which is expected to stabilize in the target range of 5-7 percent during FY26. Economic growth is projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts. However, the Committee has noted potential risks to the external sector, including a sustained widening in the trade deficit and weak financial inflows.

Key Takeaways:

  • The Monetary Policy Committee has decided to keep the policy rate unchanged at 11 percent, citing moderate inflation and improving economic growth prospects.
  • Inflation expectation has moderated, with both households and businesses showing reduced expectations of price increases.
  • Economic growth is projected to gain further traction next year, with the government targeting a higher growth rate of 4.2 percent.
  • The Committee has noted potential risks to the external sector, including a sustained widening in the trade deficit and weak financial inflows.
  • The revised budget estimates indicate a primary balance surplus of 2.2 percent of GDP in FY25, which is higher than the previous year's 0.9 percent.
  • Global oil prices have rebounded sharply, reflecting the evolving geopolitical situation in the Middle East and some ease in US-China trade tensions.
  • The Committee emphasized the importance of timely realization of planned foreign inflows, achievement of targeted fiscal consolidation, and implementation of structural reforms to maintain macroeconomic stability and achieve sustainable economic growth.

Statistics:

  • The current policy rate is 11 percent.
  • The inflation rate increased to 3.5 percent y/y in May.
  • Core inflation declined marginally.
  • Real GDP growth for FY25 is provisionally reported at 2.7 percent, with the government targeting higher growth of 4.2 percent for FY26.
  • The trade deficit has widened substantially, with the current account remaining broadly balanced in April.
  • The SBP's FX reserves stood at $11.7 billion as of June 6, after the completion of the first EFF review and the disbursement of around $1 billion.

Sources:

  • State Bank of Pakistan - Monetary Policy Committee Meeting
  • Government of Pakistan - Revised Budget Estimates
  • Global oil prices - Bloomberg/WikiEconomics

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