S&P sees cautious monetary policy despite improving economy

ISLAMABAD: 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 State Bank of Pakistan’s Monetary Policy Committee has kept the policy rate unchanged at 11.5% in its July 2026 meeting.

Commenting on this latest monetary policy announcement by the SBP, Ahmad Mobeen, Principal Economist at S&P Global Market Intelligence, said “State Bank of Pakistan’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.

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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.

Foreign exchange reserves are projected to reach USD 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.

Copyright Business Recorder, 2026