ISLAMABAD: The government has committed to the International Monetary Fund (IMF) to maintain an appropriately tight monetary policy stance and stand ready to raise interest rates if needed in the context of escalating regional conflicts.
This was noted in the Letter of Intent (LoI) submitted to IMF signed by Muhammad Aurangzeb Minister of Finance and Revenue and Jameel Ahmad Governor of the State Bank of Pakistan.
Pakistani authorities stated that they are closely monitoring the recent volatility in global food and fuel prices and the pass-through to domestic prices and core inflation, and stand ready to adjust policy, as needed. At the same time, they are continuing efforts to improve its policy framework and strengthen communication, including by providing greater detail on the MPC’s Monetary Policy Considerations in the monetary policy report. “By end-June 2026, we will further assess how MPC statements and minutes could more clearly (i) convey the committee’s assessment of the current and desired policy stance and (ii) characterize the monetary policy reaction function in light of the committee’s risk assessment,” Pakistani authorities committed to the Fund.
The LoI further noted that a flexible exchange rate, underpinned by an active foreign exchange market, is critical to buffer shocks and rebuild reserves. “We continue to view exchange rate flexibility as the key shock absorber, including against spillovers from the Middle East conflict, which will ensure that BOP pressures do not impact banks’ ability to accommodate import financing and other outward payments on a timely basis. To this end, a well-functioning interbank market is also critical to rebuilding our reserve buffers. Our efforts to improve communication and transparency by publishing semi-annual reserve targets and FX interventions continue to be instrumental in helping market participants gauge overall FX demand,” Pakistani authorities added.
The SBP’s framework towards liberalizing the foreign exchange regime will support private sector development and spur foreign investment. As a first step, onerous regulations have been removed that unduly burden banks and their clients, including certain documentary requirements. “This sets us on a broader path from ex-ante verification to risk-based ex-post supervision of FX transactions. The SBP is also developing a roadmap for gradual foreign exchange regime liberalization, spelling out the appropriate sequencing, including the macroeconomic, financial stability, and other structural preconditions needed for each liberalization step (new end March 2027 Structural Benchmark), the LoI noted.
Copyright Business Recorder, 2026
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