The State Bank of Pakistan (SBP) has kept the interest rate unchanged at 11% amid inflation risks from rising global commodity prices in the wake of the Iran-Israel conflict.
The central bank’s Monetary Policy Committee (MPC) had slashed the interest rate by 100 basis points (bps) to 11% in its last meeting on May 5, mainly owing to steady disinflation.
The central bank had cut the rate by 1,100 basis points since June from an all-time high of 22%.
“At its meeting today, the committee decided to keep the policy rate unchanged at 11%,” according to an MPC statement.
The MPC said that the increase in inflation in May to 3.5% year-on-year (y/y) was in line with its expectation, whereas core inflation declined marginally.
“Going forward, inflation is expected to trend up and stabilise in the target range during FY26,” the statement said.
The MPC also noted that economic growth is gradually recovering and is expected to gain further momentum next year, driven by the lagged 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,” according to the statement.
The MPC also cited the following:
“First, the real GDP growth for FY25 is provisionally reported at 2.7%, and the government is targeting a higher growth of 4.2% 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% of GDP in FY25, up from 0.9% last year. For next year, the government is targeting a higher primary surplus of 2.4% 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,” read the statement.
The MPC estimates that the real interest rate remains adequately positive to stabilise inflation within the target range of 5 – 7%.
“Furthermore, the Committee emphasised the timely realisation 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,” the statement emphasised.
<!–
–>
<!–
–>
#SBP #maintains #interest #rate #inflation #risks
