Karachi, Pakistan— The State Bank of Pakistan Policy Rate remains unchanged at 11%, as the Monetary Policy Committee (MPC) chose to hold its ground in the face of rising inflation and a slowly improving economy. The decision, announced on Monday, highlights the central bank’s cautious approach — balancing inflation control with macroeconomic stability while keeping borrowing costs steady despite calls for immediate rate cuts.
The central bank’s chief concern? Inflation.
While the overall headline inflation jumped significantly to 5.6% in September (up from 3% in August), the MPC believes the real interest rate is still high enough to pull inflation back into the long-term 5–7% target range.
Why the Status Quo? Better-Than-Expected News
The decision of the State Bank of Pakistan policy rate to maintain the 11% rate hinges on a few encouraging developments that have improved the economic outlook since their last meeting:
- Less Flood Damage: The economic impact of the recent floods has been “somewhat lower than anticipated. Crop losses were managed and supply chain disruption was minimal, and that suggests a faster path to recovery.
- Economic Momentum: Economic Momentum: High-frequency indicators are indicating the economy is picking up with real GDP growth in FY25 now updated to 3%.
- External Strength: The country’s external finances are looking better. The current account posted a surprising $110 million surplus in September, a reversal from a deficit the year prior. In addition, SBP’s foreign exchange reserves keep increasing despite the repayment of a $500 million Eurobond.
- IMF Approval: The fact that Pakistan had achieved a staff-level agreement with the IMF on two important facilities proved to be a much-needed boost to confidence.
The Inflation Caveat
Despite the positive developments, the immediate inflation outlook remains bumpy. The September spike to 5.6% was driven primarily by rising food and energy prices, a classic post-flood reaction.
The MPC is under no illusion: they expect inflation to briefly exceed the upper bound of their target range for a few months in the first half of the next fiscal year (H2-FY26) before settling down into the target range in FY27. For now, the 11% rate acts as an anchor to prevent expectations from running away.
Market Validation
The decision was no shock to analysts. Market experts from firms like Arif Habib Limited (AHL) and Topline Securities had predicted the hold, arguing that with inflation pressures rising and economic recovery just beginning, the central bank would be wise to “allow stability itself to nurture the ongoing momentum” rather than risk new volatility with a premature rate cut.
Related: SBP Likely to Maintain Policy Rate at 11% Amid Flood-Driven Inflation
Simply put, the SBP is choosing a steady hand, letting the current rate do its job of cooling prices and stabilizing the market before it considers easing the cost of borrowing.
The Road Ahead
The SBP reaffirmed that the State Bank of Pakistan Policy Rate provides a strong anchor for inflation expectations while supporting external and fiscal stability. The central bank reiterated that the real policy rate remains adequately positive, and any easing will depend on consistent moderation in inflation.
For now, the central bank prefers continuity — allowing stability itself to nurture the ongoing recovery. As Pakistan navigates the challenges of inflation, floods, and global volatility, the State Bank of Pakistan Policy Rate remains a critical tool in steering the economy toward sustained stability and controlled growth.
