KARACHI: Despite signs of improvement in Pakistan’s macroeconomic outlook, the State Bank of Pakistan (SBP)’s Monetary Policy Committee (MPC) on Monday left the policy rate unchanged at 11.5 percent, citing heightened external risks following the resurgence of conflict in the Middle East.
Addressing a press conference after the meeting of MPC at SBP head office, 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.
In order to further enhance the transparency of the monetary policy decision-making process, now onwards, the voting pattern will also be disclosed in the monetary policy statement and in Monday meeting, MPC unanimously decided to keep the policy rate unchanged, he said.
READ MORE: Monetary policy today
During the meeting the committee also observed that the earlier de-escalation had led to a decline in global oil prices and a relative ease in supply chain disruptions, which resulted 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 pickup in economic activity, whereas external account pressures remained moderate. “Taking into account these developments and evolving risks, the MPC assessed that the current monetary policy stance remains appropriate to guide inflation towards the target range of 5-7 percent over the medium term,” he said.
Jameel Ahmad highlighted several positive economic developments since the last monetary policy meeting. He said the SBP’s foreign exchange reserves exceeded the end-June 2026 target of USD18 billion, supported by continued foreign exchange purchases, a small current account deficit during FY26, and the realisation of planned official inflows.
He noted that Pakistan’s sovereign credit rating was upgraded to “B” by Standard & Poor’s, while the latest sentiment surveys showed easing inflation expectations among both consumers and businesses.
He added that the Federal Board of Revenue (FBR) achieved its revised tax revenue target for FY26. However, he pointed out that the International Monetary Fund (IMF) has raised its global inflation forecasts for calendar years 2026 and 2027 in its latest World Economic Outlook, citing rising global commodity prices.
He informed that committee assessed that the macroeconomic outlook has improved from its previous meeting, though it remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East.
“We are committed to achieve the objective of price stability and will continue to closely monitor incoming data and evolving developments,” Governor SBP said.
The committee also emphasised the importance of further strengthening external and fiscal buffers, and accelerating structural reforms as these are necessary to strengthen resilience to recurring shocks, enhance productivity and support higher and sustainable economic growth.
Governor SBP informed that headline inflation eased to 11.1 percent Year-on-Year (YoY) in June 2026 from 11.7 percent in the previous month primarily attributable to pass-through of the decline in global energy prices to the domestic consumers, alongside favorable electricity tariff adjustment. Core inflation also moderated to 8.4 percent, but continues to remain elevated.
However, food inflation increased in June following a significant increase in prices of wheat and allied products as well as key perishable items, he mentioned.
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 next few months.
Inflation is subsequently projected to ease gradually and stabilise near the upper bound of the 5-7 percent target range by June 2027. This outlook is subject to multiple risks, including volatility in global energy prices, unanticipated adjustments in administered energy prices, unfavorable climate conditions and potential fiscal slippages, he said.
On agriculture side, he said that initial assessment indicates significant increase in expected sugarcane output, which is likely to more than offset lower projected cotton production. Better prospects for the commodity-producing sectors would also generate some positive spillovers for the services sector. Moreover, budgetary incentives, continuation of import tariff rationalisation and pickup in private sector credit are likely to further support economic activity.
Lower current account deficit and higher remittances inflows helped SBP strengthen its foreign exchange reserves to USD 18.4 billion by end of June and significantly reduce forward liabilities. However, with substantial debt repayments in recent weeks, the foreign exchange reserves have reached around USD 17.3 billion as on July 17, he mentioned.
According to monetary policy statement, as of July 10, broad money (M2) growth moderated to 13.2 percent YoY from 15.2 percent at the time of the last MPC meeting, reflecting lower contributions from both NDA and NFA of the banking system. Within 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 and noted across working capital, fixed investment and consumer financing. The major borrowing sectors included textiles, telecommunications, and wholesale and retail trade. Furthermore, the committee 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.
Copyright Business Recorder, 2026
Comments