The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Wednesday decided to keep the policy rate unchanged at 11%.
“The MPC has decided to maintain the policy rate at 11%,” said SBP Governor Jameel Ahmad while addressing a press conference.
The decision contradicts market expectations, which had anticipated a rate cut of around 50 to 100 basis points (bps).
The committee noted that inflation in June 2025 decelerated to 3.2% year-on-year, led mainly by lower food prices, whereas core inflation also declined slightly.
“However, the committee noted that the inflation outlook has somewhat worsened in the wake of higher-than-anticipated adjustments in energy prices, especially gas tariffs,” read the MPC statement.
“Nonetheless, inflation is projected to stabilise in the target range going forward.
“Moreover, economic activity is gaining further traction amidst the still-unfolding impact of the earlier reductions in the policy rate.”
The committee noted that the trade deficit is expected to widen further in FY26 amidst the pickup in economic activity and slowdown in global trade.
“Given this macroeconomic outlook and the emerging risks, the MPC considered today’s decision as necessary to ensure price stability,” it said.
The MPC noted the following key developments since its last meeting:
“First, the SBP’s FX reserves crossed $14 billion on the back of improved financial inflows and a current account surplus.
“Second, the recent upgrade in Pakistan’s sovereign credit rating led to a decline in Eurobond yields and narrowed CDS spreads in international markets.
“Third, inflation expectations increased slightly for consumers but declined for businesses in the latest sentiment surveys.
“Fourth, FBR tax revenue for FY25 was recorded at Rs11.7 trillion, which fell short of the revised estimate by around Rs200 billion.
“Lastly, global oil prices remained volatile, whereas metal prices increased. At the same time, the impact of global trade tariffs remained uncertain, prompting central banks to maintain their cautious monetary policy stance.
“In view of these developments and potential risks, the committee assessed that the real policy rate should continue to be adequately positive to stabilise inflation in the target range of 5 – 7%,” read the statement.
The MPC emphasised the need to continue the ongoing prudent monetary and fiscal policy mix to sustain macroeconomic stability. The committee also reiterated its view that without structural reforms, it would be difficult to achieve higher growth on a sustainable basis.
Inflation outlook
The MPC noted that going forward, energy inflation is expected to rise from current levels amidst the significant upward adjustment in gas tariffs, the phasing out of the temporary reduction in electricity tariffs (for Q4- FY25), and the recent increase in motor fuel prices.
“The MPC noted that y/y inflation is expected to mostly remain in the range of 5 – 7% in FY26, though it may cross the upper bound in some months.
“The MPC emphasised that this outlook is susceptible to multiple risks emanating from uncertain global commodity prices and trade outlook, unanticipated adjustments in administered energy prices, and potential widespread floods,” it said.
Meanwhile, during the presser, Governor SBP shared that during the last fiscal year, average headline inflation stood at 4.5%, slightly below the target range of 5–7%.
“Food inflation has reduced significantly, while core inflation has also declined,” he added.
Talking about the external account, the SBP chief noted that Pakistan’s imports increased significantly from $53 billion in FY24 to $59.1 billion in FY25, reflecting an increase of 11.1%. “Our non-oil imports have increased by 16%, which indicates broad-based growth in imports.”
“However, the increase in the country’s exports remains quite contained compared to remittances,” Ahmad noted.
Market expectations
At its previous meeting on June 16, 2025, the MPC had also kept the policy rate unchanged at 11%, citing expectations of rising inflation in the coming months.
However, market experts had expected the central bank to cut the policy rate by at least 50 basis points (bps) in today’s meeting.
“We expect the central bank to announce a cut of 50bps in the upcoming MPC meeting,” Topline Securities had said in an earlier report.
The brokerage house was of the view that the SBP had further room for around a 100bps cut, as it expected inflation in FY26 to average between 5-7%, translating into a real rate of 400-600bps.
Analysts at Arif Habib Limited (AHL) had also expected the MPC to reduce the policy rate to 10.5%.
“With inflation down, the external position currently in a manageable zone, and yields already on a downward slope, conditions seem ripe for further monetary easing, though some risks cast a shadow,” said AHL.
Similarly, a Reuters poll found that the SBP would cut the rate by 50bps to 10.5%, with a unanimous forecast for further easing as inflation slows and external balances improve.
Ahmed Mobeen, Senior Economist at S&P Global Market Intelligence, said the SBP was likely to cut rates further but may adopt a more “cautious” pace in the second half of the year due to rising import demand and global commodity risks.
Previous MPC meeting
In its June meeting, the MPC kept the policy rate unchanged at 11%, in line with market expectations.
The committee, at that time, noted that the increase in inflation in May to 3.5% year-on-year (y/y) was in line with its expectations, whereas core inflation declined marginally.
“Going forward, inflation is expected to trend up and stabilise in the target range during FY26,” it said.
The MPC also assessed that economic growth was picking up gradually and was projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts.
Since the last MPC meeting, several key economic developments have occurred.
The rupee has appreciated by 0.04%, while petrol prices increased by 5.3%.
Internationally, oil prices have declined by nearly 4% since the last MPC, hovering around $69 per barrel.
Pakistan’s headline inflation clocked in at 3.2% on a year-on-year (YoY) basis in June 2025, a reading lower than that of May 2025, when it had stood at 3.5%, showed Pakistan Bureau of Statistics (PBS) data.
In addition, Pakistan’s current account (C/A) posted a massive surplus of $2.1 billion during the fiscal year (FY) 2024-25, a sharp contrast to the $2.07 billion deficit recorded in FY24, data released by the SBP showed.
Foreign exchange reserves held by the SBP decreased by $69 million on a weekly basis, clocking in at $14.46 billion as of July 18.
Total liquid foreign reserves held by the country stood at $19.92 billion. Net foreign reserves held by commercial banks stood at $5.46 billion.
