The State Bank of Pakistan (SBP) on Monday decided to keep its benchmark policy rate unchanged at 11.5 percent to start the new fiscal year 2026-27.
This is the second consecutive unchanged stance adopted by the central bank after the 15 June 2026 session.
The next meeting of the Monetary Policy Committee is scheduled to be held on 14 September 2026.
The Monetary Policy Committee (MPC) unanimously decided to keep the policy rate unchanged at 11.5 percent in its meeting held today.
The Committee assessed that the macroeconomic outlook has improved since its previous meeting, though it remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East. Meanwhile, the Committee observed that the earlier de-escalation had led to a decline in global oil prices and a relative easing of supply chain disruptions, resulting in some improvement in recent economic indicators.
Headline and core inflation moderated in June, though both remained at elevated levels. At the same time, incoming high-frequency indicators pointed to some pick-up in economic activity, while external account pressures remained moderate.
Taking these developments and evolving risks into account, the MPC assessed that the current monetary policy stance remains appropriate to guide inflation toward the target range of 5–7 percent over the medium term.
The Committee noted the following key developments since its last meeting. First, SBP’s FX reserves surpassed the end-June 2026 target of $18 billion, largely due to continued FX purchases amid a small current account deficit in FY26 and the realization of planned official inflows.
Second, Pakistan’s sovereign credit rating was upgraded to ‘B’ by Standard & Poor’s. Third, inflation expectations eased for both consumers and businesses in the latest sentiment surveys, while confidence indicators presented a mixed picture. Fourth, the FBR met its revised tax revenue target for FY26.
Finally, the IMF increased its global inflation forecast for both CY26 and CY27 in the latest World Economic Outlook amid rising global commodity prices.
The MPC noted that proactive macroeconomic management—underpinned by a prudent monetary policy stance and sustained fiscal consolidation—has helped effectively manage the ongoing supply shock and preserve macroeconomic stability despite a challenging global environment.
The MPC reiterated its commitment to achieving the objective of price stability and will continue to closely monitor incoming data and evolving developments. The Committee also emphasized the importance of further strengthening external and fiscal buffers while accelerating structural reforms.
These measures are necessary to strengthen resilience against recurring shocks, enhance productivity, and support higher and more sustainable economic growth.
As anticipated, economic activity slowed somewhat in Q4 of FY26 due to the Middle East conflict, rising global energy prices, and the government’s austerity measures. However, high-frequency indicators, including satellite imagery, automobile sales, cement dispatches, fertilizer offtake, and business sentiment, suggest some recovery in economic activity during June.
The agriculture outlook has also improved since the previous assessment. In particular, the initial assessment indicates a significant increase in expected sugarcane output, which is likely to more than offset the projected decline in cotton production. Better prospects for the commodity-producing sectors are also expected to generate positive spillover effects for the services sector.
Moreover, budgetary incentives, continued import tariff rationalization, and a pick-up in private sector credit are likely to provide further support to economic activity. Accordingly, the MPC expects real GDP growth to remain in the range of 3.5–4.5 percent during FY27.
However, risks arising from volatile global commodity prices amid the re-escalation of tensions in the Middle East and uncertain weather conditions, including the evolving effects of El Niño, may weigh on growth prospects.
The current account posted a deficit of $139 million in FY26, close to the lower bound of the projected range for the year. Record-high workers’ remittances partly offset the widening trade deficit amid the Middle East conflict. At the same time, the financial account recorded a surplus.
These developments enabled the SBP to strengthen its FX reserves and significantly reduce forward liabilities. However, following substantial debt repayments in recent weeks, FX reserves stood at around $17.3 billion as of July 17. Going forward, the current account deficit is expected to widen in line with the recovery in economic activity, though it is projected to remain within 0–1 percent of GDP during FY27.
Workers’ remittances are expected to grow compared with last year and continue financing a large share of the projected trade deficit. With the realization of planned official inflows and an expected improvement in private inflows, SBP’s FX reserves are targeted to increase to $20.20 billion by the end of December 2026.
The FBR achieved its revised tax collection target of Rs. 13.0 trillion by the end of FY26. The primary balance is estimated to have remained in surplus for the third consecutive year. Meanwhile, the overall fiscal deficit is estimated to have narrowed significantly compared with the previous year.
Going forward, fiscal consolidation is expected to continue in FY27, with the primary surplus targeted at 2.0 percent of GDP, while the overall fiscal deficit is projected at 3.6 percent of GDP. Achieving these targets will require sustained progress in revenue mobilization and expenditure discipline amid an uncertain domestic and global environment.
In this regard, the MPC re-emphasized the need for fiscal reforms, particularly tax base-broadening efforts and measures to reduce losses of public sector enterprises (PSEs), to support higher and more sustainable economic growth.
As of July 10, broad money (M2) growth moderated to 13.2 percent year-on-year from 15.2 percent at the time of the previous MPC meeting, reflecting lower contributions from both the NDA and NFA of the banking system. Within the NDA, growth in net budgetary borrowing slowed, while private sector credit growth accelerated to 14.9 percent, supported by easing financial conditions.
This increase in credit was broad-based across working capital, fixed investment, and consumer financing. The major borrowing sectors included textiles, telecommunications, and wholesale and retail trade.
The Committee also noted a moderation in reserve money growth, mainly reflecting the post-Eid reversal in currency in circulation, which, along with robust growth in bank deposits, contributed to a decline in the currency-to-deposit ratio.
Headline inflation eased to 11.1 percent year-on-year in June 2026 from 11.7 percent in the previous month. This was primarily attributable to the pass-through of lower global energy prices to domestic consumers, along with favorable electricity tariff adjustments.
Core inflation also moderated to 8.4 percent, though it remained elevated. However, food inflation increased in June following a significant rise in the prices of wheat and wheat-based products, as well as key perishable food items.
Going forward, the recent increase in global commodity prices, higher input costs and domestic food price pressures are likely to keep inflation above the target range over the coming months. Inflation is subsequently projected to ease gradually and stabilize near the upper bound of the 5–7 percent target range by June 2027.
This outlook remains subject to multiple risks, including volatility in global energy prices, unanticipated adjustments in administered energy prices, unfavorable climate conditions, and potential fiscal slippages.
Get the latest business news, market insights, and economic updates wherever you prefer.
Add ProPakistani to Preferred Sources and see more of our stories in Google Search and Top Stories.