SBP holds policy rate at 11%, signals steady hand on inflation
- Central bank upbeat on growth, reserves; flood impact limited
- Balanced stance to anchor prices, sustain momentum amid global risks
The State Bank of Pakistan (SBP) on Monday kept its policy rate unchanged at 11 percent, signaling confidence that inflation will remain within control even as global and domestic uncertainties persist. The Monetary Policy Committee (MPC) said the decision reflects a “balanced approach” — supporting growth while keeping inflation expectations anchored.
Headline inflation ticked up to 5.6 percent in September 2025 from 3 percent in August, driven by food and energy costs, but core inflation stayed firm at 7.3 percent. The central bank noted that the impact of recent floods was smaller than expected, with limited crop losses and minimal supply disruptions. “The overall macroeconomic outlook has improved,” the MPC said, citing stronger economic activity and better sentiment among businesses and consumers.
The SBP revised FY25 GDP growth upward to 3 percent from 2.7 percent, with signs of continued momentum in FY26. Large-scale manufacturing grew 4.4 percent in the first two months, led by automobiles, cement, fertilizer, and petroleum products. These gains, it said, would spill over to services, pushing overall growth toward the upper end of the earlier 3.25–4.25 percent range.
On external accounts, the current account posted a $110 million surplus in September, cutting the first-quarter deficit to $594 million. Foreign exchange reserves have continued to rise despite a $500 million Eurobond repayment, and are expected to reach $15.5 billion by December 2025 and $17.8 billion by June 2026, aided by improved remittances and stable inflows.
Inflation is forecast to hover above the 5–7 percent target range for part of FY26 before settling within it in FY27. “The real policy rate remains adequately positive to stabilize prices over the medium term,” the MPC noted.
The SBP also highlighted Pakistan’s recent staff-level agreement with the IMF under the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) reviews as a key confidence booster.
Market analysts termed the decision “status quo as expected,” predicting a neutral reaction. The stable policy environment, they added, supports accumulation in energy, banking, cement, fertilizer, steel, and auto sectors — signaling investor optimism for steady growth ahead.
