Karachi: The State Bank of Pakistan (SBP) on Monday decided to retain key policy rate at 11 percent.
A monetary policy committee meeting in chair of the Governor SBP Jamil Ahmed decided not to change the interest for next three months.
In its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 percent.
The Committee noted that the increase in inflation in May to 3.5 percent y/y was in line with its expectation, whereas core inflation declined marginally.
Meanwhile, inflation expectations of both households and businesses moderated. Going forward, inflation is expected to trend up and stabilize in the target range during FY26.
The MPC also assessed that economic growth is picking up gradually and is projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts.
At the same time, the Committee noted some potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows.
Moreover, some of the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports.
In this regard, the Committee deemed today’s decision appropriate to sustain the macroeconomic and price stability.
The Committee noted the following key developments since its last meeting. First, the real GDP growth for FY25 is provisionally reported at 2.7 percent, and the government is targeting higher growth of 4.2 percent for next year.
Second, despite a substantial widening in the trade deficit, the current account remained broadly balanced in April.
Meanwhile, the completion of the first EFF review led to the disbursement of around $1 billion, which increased the SBP’s FX reserves to $11.7 billion as of June 6.
Third, the revised budget estimates indicate the primary balance surplus at 2.2 percent of GDP in FY25, up from 0.9percent last year.
For next year, the government is targeting a higher primary surplus of 2.4 percent of GDP.
Lastly, global oil prices have rebounded sharply, reflecting the evolving geopolitical situation in the Middle East and some ease in US-China trade tensions.
Taking stock of these developments and potential risks, the Committee assessed that the real interest rate remains adequately positive to stabilize inflation within the target range of 5 – 7 percent.
Furthermore, the Committee emphasized the timely realization of planned foreign inflows, achievement of the targeted fiscal consolidation and the implementation of structural reforms as essential to maintain macroeconomic stability and achieve sustainable economic growth.
According to provisional PBS estimates, the economy gained momentum during the second
It was anticipated that the interest rate will be kept unchanged at 11 percent as experts suggest that existing economic conditions do not support a further reduction at this stage.
Since June 2024, the central bank has implemented a series of rate cuts aimed at stabilizing the economy and supporting growth.
Over the course of eight consecutive MPC meetings, the policy rate has been reduced by a total of 11 percentage points.
Meanwhile, the business community continues to urge the central bank to bring the interest rate into single digits, arguing that high borrowing costs are a barrier to investment and industrial expansion.
The bank had cut the rate by 1,000 basis points since June 2004 from an all-time high of 22 percent before holding it in March, citing the risk of price rises including from increased US tariffs.
In May, the central bank cut its key policy rate by 100 basis points to 11 percent, citing an improved inflation outlook and resuming a series of cuts from a record high of 22 percent.
“56 percent of market participants expect a status quo in the upcoming monetary policy meeting, compared to 31 percent in the previous poll,” Topline Securities said in a market note, releasing the results of its survey.
“44 percent of participants anticipate a further rate cut of at least 50 basis points. Of these, 19 percent expect a 50 bps cut and 25 percent foresee a 100 bps cut.”
