SBP projects inflation within target range, sees growth picking up in FY26

The State Bank of Pakistan (SBP) on Monday released its bi-annual Monetary Policy Report (MPR), highlighting an improved macroeconomic outlook supported by a cautious monetary stance and continued fiscal consolidation.

The report reviews economic developments since the publication of the previous MPR in August 2025 and outlines the factors that guided the Monetary Policy Committee’s (MPC) decisions during the period.

According to the SBP, inflation is expected to remain within the 5-7 percent target range for most of FY26 and FY27, although some short-term volatility may persist.

The central bank projected the current account deficit to stay contained at 0-1 percent of GDP in FY26, as higher trade deficits are likely to be partly offset by strong workers’ remittances and planned official inflows.

As a result, SBP’s foreign exchange reserves are expected to rise to $18 billion by June 2026 and increase further in FY27, reaching close to three months of import cover.

The report noted that economic activity has strengthened amid ongoing macroeconomic stabilisation, easing financial conditions, and the recent reduction in the Cash Reserve Requirement to 5 percent.

Read More: Inflation in Pakistan clocks in at 5.8% in January 2026

Reflecting these developments, the SBP revised its growth outlook upward, projecting real GDP growth in the range of 3.75-4.75 percent for FY26, with growth expected to accelerate further in FY27.

However, the MPR also flagged several risks to the economic outlook. While concerns over widespread disruption from recent floods have eased, uncertainty linked to global tariff-related developments and volatility in international commodity prices remains.

On the domestic front, below-target revenue collection and the potential impact of adverse climate events were identified as key vulnerabilities for inflation, the external account, and economic growth.

The central bank stressed the need to accelerate structural reforms to strengthen economic resilience, enhance productivity and address persistent losses of state-owned enterprises.

The report also includes four thematic box items focusing on key monetary policy concepts. These cover the transmission of monetary policy following the sharp policy rate cuts since June 2024, the use of heat maps to assess economic activity, and the role of surveys and structured engagement with private-sector stakeholders in supplementing data-driven policymaking.