KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to maintain the policy rate at 11.5 percent, stating that the current monetary stance remains appropriate to steer inflation towards the medium-term target range of 5 to 7 percent.
The MPC in its meeting held on Monday at the SBP head office, reviewed the economic indicators and finally keep the policy rate unchanged.
The committee also reiterated that it is imperative to accelerate structural reforms to strengthen the economy’s resilience to supply shocks, enhance productivity, and create the necessary conditions for higher and more sustainable economic growth.
READ MORE: Policy rate hiked 1pc on ME conflict
The Committee noted that global oil prices have eased following the recent positive geopolitical developments, yet they remain elevated as compared to pre-conflict levels, however, the impact of the conflict is now reflecting in recent economic indicators as headline inflation rose to double digits in April and May, while core inflation also edged up.
In addition, economic activity is showing some signs of moderation, reflecting the impact of elevated prices, austerity measures and prevalent economic uncertainty. Meanwhile, the external account pressures remain moderate.
While evaluating the impact of these unfolding developments and risks, the MPC observed that the macroeconomic outlook is broadly unchanged from its previous meeting. In this context, the MPC assessed that the current monetary policy stance remains appropriate to guide inflation towards the target range of 57 percent over the medium term.
The MPC noted that proactive macroeconomic management, underpinned by forward-looking monetary policy and consistent fiscal consolidation, has helped sustain ongoing macroeconomic stability despite the prolonged Middle East conflict.
The MPC remains committed to achieving its objective of price stability and will closely monitor incoming data and evolving developments.
The Committee noted several key developments since its last meeting, including provisional FY26 GDP growth of 3.7 percent, a modest recovery in consumer and business confidence alongside easing inflation expectations, and an increase in SBP reserves to USD17.2 billion following IMF programme progress. It also highlighted a projected fiscal primary surplus of 2.5 percent of GDP for FY26, with a 2.0 percent target for FY27, while warning that the Middle East conflict is beginning to weigh on global macroeconomic conditions and prompting tighter monetary policy in several economies.
According to the provisional PBS estimates, real GDP grew by 3.7 percent in FY26, which outturn reflects the impact of Middle East conflict and austerity measures, as the pre-conflict growth momentum was notably higher.
Looking ahead, the MPC expects that spillover from the conflict may continue to moderate activity in both industry and services sectors in the coming months. This, along with subdued agriculture prospects as indicated by initial information on the Kharif crops amidst challenging weather conditions, may weigh on the growth outlook for FY27.
The current account posted a deficit of USD 0.2 billion during July-April FY26 mainly due to a widening of the trade deficit amidst the surge in energy imports in April, which more than offset the resilient workers’ remittances.
The realization of sizable workers’ remittances during May is likely to contain the current account deficit in FY26 to the lower end of the earlier projected range, despite the challenging external environment. On the financing side, increase in official inflows provided critical support in meeting external obligations.
These developments have facilitated ongoing FX purchases and buildup in SBP’s FX reserves, which are projected to reach $18 billion by end-June 2026. Notwithstanding some expected widening in the current account deficit in FY27, the MPC noted that the reserve buildup is expected to continue amidst FX purchases and timely realization of planned official inflows.
As per the July-March FY26 fiscal operations data, the fiscal consolidation efforts remained broadly on track, primarily driven by expenditure restraint. Revenue growth, however, moderated as compared to the same period last year.
In this context, the FBR has revised its target to around Rs13 trillion for FY26. Despite this downward revision in revenues, the government expects to achieve a primary balance surplus of 2.5 percent of GDP by containing expenditures.
For FY27, the government is targeting a primary balance surplus of 2.0 percent of GDP. In this regard, the MPC emphasized the importance of continuing with fiscal consolidation. The Committee also reiterated the need for timely implementation of structural reforms, particularly measures aimed at broadening the tax base and reforming PSEs.
Since the last MPC meeting, broad money (M2) growth moderated to 14.3 percent y/y as of May 29, 2026, from 14.5 percent on April 10, 2026 due to a deceleration in NDA growth, reflecting moderation in net budgetary borrowing from the banking system.
Meanwhile, private sector credit grew by around 13 percent, with increase in working capital, fixed investment and consumer financing. At the same time, the improvement in the external position led to an acceleration in NFA growth.
Copyright Business Recorder, 2026