State Bank keeps policy rate unchanged at 11%

The State Bank of Pakistan (SBP) has announced to maintained the police rate at 11 percent, shooting down widespread hopes of a cut in the interest rate, reported 24NewsHD TV channel.

The announcement was made by SBP Governor Jameel Ahmad at a news conference in Karachi following a meeting of the State Bank’s Monetary Policy Committee (MPC) on Wednesday. “The MPC has decided to maintain the policy rate at 11%,” said Governor Jameel Ahmad.

The decision sank market expectations, which had anticipated a rate cut of around 50 to 100 basis points (bps).

The MPC noted that inflation in June 2025 decelerated to 3.2% year-on-year, led mainly by lower food prices, whereas core inflation also declined slightly. “However, the committee noted that the inflation outlook has somewhat worsened in the wake of higher-than-anticipated adjustments in energy prices, especially gas tariffs. Nonetheless, inflation is projected to stabilise in the target range going forward.

“Moreover, economic activity is gaining further traction amidst the still-unfolding impact of the earlier reductions in the policy rate,” read the MPC statement.

The committee noted that the trade deficit is expected to widen further in FY26 amidst the pickup in economic activity and slowdown in global trade.

“Given this macroeconomic outlook and the emerging risks, the MPC considered today’s decision as necessary to ensure price stability,” it said.

The MPC noted the following key developments since its last meeting:

“First, the SBP’s foreign exchange reserves crossed $14 billion on the back of improved financial inflows and a current account surplus.

“Second, the recent upgrade in Pakistan’s sovereign credit rating led to a decline in Eurobond yields and narrowed CDS spreads in international markets.

“Third, inflation expectations increased slightly for consumers but declined for businesses in the latest sentiment surveys.

“Fourth, FBR tax revenue for FY25 was recorded at Rs11.7 trillion, which fell short of the revised estimate by around Rs200 billion.

“Lastly, global oil prices remained volatile, whereas metal prices increased. At the same time, the impact of global trade tariffs remained uncertain, prompting central banks to maintain their cautious monetary policy stance.

“In view of these developments and potential risks, the committee assessed that the real policy rate should continue to be adequately positive to stabilise inflation in the target range of 5 – 7%,” read the statement.

The MPC emphasised the need to continue the ongoing prudent monetary and fiscal policy mix to sustain macroeconomic stability. The committee also reiterated its view that without structural reforms, it would be difficult to achieve higher growth on a sustainable basis.

During his news conference, the State Bank governor shared that during the last fiscal year, average headline inflation stood at 4.5%, slightly below the target range of 5–7%. “Food inflation has reduced significantly, while core inflation has also declined,” he added.

Talking about the external account, the SBP chief noted that Pakistan’s imports increased significantly from $53 billion in FY24 to $59.1 billion in FY25, reflecting an increase of 11.1%. “Our non-oil imports have increased by 16%, which indicates broad-based growth in imports.”

“However, the increase in the country’s exports remains quite contained compared to remittances,” Jameel Ahmad noted.

At its last meeting on June 16, 2025, the MPC had also kept the policy rate unchanged at 11%, citing expectations of rising inflation in the coming months.

However, market experts had expected the SBP to cut the policy rate by at least 50 basis points (bps) in today’s meeting.

The policy rate had been slashed by 1,000bps from 22pc since June 2024 in seven intervals to 11 percent. The bank had kept the rate unchanged on June 16 as well.
 

Reporter Baseem Iftikhar