Key Takeaways
- The State Bank of Pakistan (SBP) maintained the policy rate at 11.5 percent.
- Key risks include global commodity price volatility and supply disruptions.
- Inflation rose to 11.1 percent year-on-year in August, up from 9.2 percent in July.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided to keep the policy rate unchanged at 11.5 percent during its meeting on Monday. The MPC noted that recent domestic macroeconomic developments remained broadly in line with its expectations.
While the MPC believes the FY27 inflation outlook remains broadly unchanged, it acknowledged that the risks to the inflation outlook have increased significantly. The key risks include volatility in global commodity prices, the magnitude of adjustments in electricity and gas tariffs, supply disruptions, and unexpected movements in food prices amidst worsening El Niño conditions.
The MPC’s meeting, chaired by SBP Governor Jameel Ahmad, saw seven out of ten MPC members voting to maintain the status quo. This marks the third consecutive meeting where the policy rate has been kept unchanged. The last rate change was recorded in April, when the policy rate was raised by 100 basis points from 10.5 percent to 11.5 percent.
During the meeting, the MPC noted that more frequent geopolitical and weather-related shocks continue to pose risks to the macroeconomic outlook. The Committee emphasized the need for a prudent monetary and fiscal policy mix, stronger buffers to absorb supply shocks, and timely structural reforms to enhance resilience, boost productivity, and support sustainable growth.
The Committee also noted that the intensifying Middle East conflict has pushed global commodity prices higher and prolonged supply chain disruptions. However, recent domestic macroeconomic data remained broadly in line with expectations. Headline inflation increased to 11.1 percent year on year in August from 9.2 percent in July, while core inflation was slightly lower than expectations.
External account pressures remained contained, supported by robust workers’ remittances and higher financial inflows. Economic activity, after witnessing a slowdown in Q4-FY26, started to pick up gradually, as reflected by recent high-frequency indicators. The MPC assessed that the current monetary policy stance remains appropriate to guide inflation towards the target range of 5-7 percent over the medium term.
However, uncertainty regarding the outlook has increased, particularly from the worsening geopolitical environment. The Committee noted several key developments, including Moody’s upgrade of Pakistan’s sovereign rating to B3 with a stable outlook, Pakistan raising USD 3 billion through Eurobonds, and inflation expectations rising while business and consumer confidence weakened.
Large-scale manufacturing fell 3.5 percent in June, though FY26 growth reached 5 percent. FBR tax collection remained on track in July-August FY27, while SBP transferred Rs1.9 trillion in profit to the government against Rs1.4 trillion budgeted. Lastly, central banks have become more cautious amidst challenging global economic conditions. While noting these developments and evolving risks, the MPC reiterated its commitment to achieving price stability with close monitoring of incoming data and ongoing situation in the Middle East.
