SBP likely to maintain caution as Middle East risks, inflation weigh: S&P Global Market Intelligence

S&P Global Market Intelligence believes Pakistan’s monetary policy is likely to remain cautious despite an improving macroeconomic backdrop, as inflationary pressures and external risks continue to shape the country’s economic outlook.

The remarks came a day after the State Bank of Pakistan’s (SBP) Monetary Policy Committee kept the policy rate unchanged at 11.5%, citing heightened external risks following the resurgence of conflict in the Middle East.

Addressing a press conference after the meeting of MPC, SBP Governor Jameel Ahmad said 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.

Commenting on this latest monetary policy announcement by the central bank, Ahmad Mobeen, Principal Economist at S&P Global Market Intelligence, said, “SBP’s decision to keep the policy rate unchanged comes amid a more stable macroeconomic backdrop, supported by easing near-term external pressures and a recovery in activity indicators and sentiment surveys.

“However, the policy stance is likely to remain cautious going forward, as inflation remains above the central bank’s target range, while risks from renewed Middle East tensions, volatile commodity prices, and especially the prospect of a severe El Niño shock continue to weigh on the outlook.

“External buffers are improving as well, but repayment pressures and reliance on official inflows and rollovers mean policy discipline will remain critical.”

S&P Global Market Intelligence projects Pakistan’s real GDP growth at 3.5% in fiscal year 2027, supported by improving economic fundamentals. However, the outlook continues to face downside risks from commodity price volatility and the potential impact of a severe El Niño weather event.

The firm also expects Pakistan’s external position to strengthen further, supported by robust remittance inflows and planned official financing.

Meanwhile, foreign exchange reserves are projected to reach $19.5 billion by the end of December 2026, while the current account deficit is forecast at 0.7% of GDP in calendar year 2026 and 0.9% of GDP in calendar year 2027.