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Banks (Finance)

State Bank of Pakistan Maintains Benchmark Policy Rate Unchanged Despite Market Expectations

Strategic Insights

— 1 min read

State Bank of Pakistan's Monetary Policy Committee (MPC) kept the benchmark policy rate steady at 11% despite expectations of a rate cut. The decision was influenced by emerging inflation risks and external pressures.SBP Governor Jameel Ahmad highlighted the committee's consideration of multiple economic indicators, including inflation and economic activity. While inflation eased to 3.2% year-on-year in June 2025 and core inflation declined, the MPC remained cautious about the inflationary impact of recent energy tariff increases. The committee projected that inflation would remain largely within the 5-7% target range going forward. Economic activity is expected to continue strengthening, driven by the delayed effects of previous rate cuts. However, the MPC warned that a widening trade deficit could pose new challenges as domestic demand rises and global trade slows. The central bank emphasized the importance of maintaining a positive real interest rate and a careful balance between fiscal and monetary policies to ensure macroeconomic stability.

Key Takeaways:

  • The State Bank of Pakistan's Monetary Policy Committee maintained the benchmark policy rate at 11%, contrary to market expectations of a rate cut.
  • The committee cited emerging inflation risks and external pressures as reasons for the decision.
  • Inflation in June 2025 eased to 3.2% year-on-year, driven by lower food prices, but core inflation also declined.
  • The MPC expressed concern over the inflationary impact of recent increases in energy tariffs, which may lead to rising energy inflation.
  • Economic activity is expected to continue strengthening, driven by the delayed effects of previous rate cuts.
  • The MPC warned of a widening trade deficit and its potential impact on the economy.
  • The central bank emphasized the importance of maintaining a positive real interest rate and a careful balance between fiscal and monetary policies.
  • Average inflation for FY25 stood at 4.5%, slightly below the target range.

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