Karachi, June 16, 2025 – The State Bank of Pakistan (SBP) has decided to maintain the policy rate unchanged at 11%, reflecting a cautious but steady approach toward monetary management amid rising geopolitical tensions. In its meeting on Monday, the SBP’s Monetary Policy Committee (MPC) concluded that the current policy rate remains appropriate to support macroeconomic stability and anchor inflation within the 5–7% target range.
This is the second consecutive meeting in which the SBP has retained the policy rate at 11%. The MPC noted that the recent uptick in inflation to 3.5% year-on-year in May was anticipated and primarily attributed to the base effect in food prices. Meanwhile, core inflation declined slightly, and inflation expectations among households and businesses continued to moderate. The SBP emphasized that the real interest rate remains positive and supportive of its disinflationary policy stance.
The Committee also took stock of several macroeconomic developments. The provisional GDP growth for FY25 stands at 2.7%, with the government targeting an ambitious 4.2% growth in FY26. While a substantial widening of the trade deficit was observed, the current account remained broadly balanced in April. The completion of the first review under the Extended Fund Facility (EFF) and the resulting disbursement of $1 billion has increased the SBP’s foreign exchange reserves to $11.7 billion as of June 6. The SBP expects its reserves to rise to around $14 billion by the end of June, provided planned inflows materialize.
Despite these gains, the SBP highlighted risks to the external sector. Continued growth in imports driven by recovery in economic activity, sluggish exports, and potential adverse effects from FY26 budgetary measures could pressure the current account. While remittances remain robust, the MPC warned that sustained external financing and policy continuity would be crucial to manage these vulnerabilities.
The SBP also underlined that the positive impact of earlier policy rate cuts is beginning to unfold, contributing to gradual economic recovery. The MPC reiterated that maintaining the current policy rate is necessary to allow these effects to deepen while keeping inflation in check.
On the fiscal front, revised budget estimates show a primary surplus of 2.2% of GDP for FY25, up from 0.9% last year. The government has targeted a 2.4% primary surplus in FY26, aligning with the SBP’s recommendation for fiscal consolidation. Achieving this will require reforms to broaden the tax base and reduce reliance on domestic borrowing.
In terms of money and credit, broad money (M2) growth slowed to 12.6%, driven by a decline in net budgetary borrowing. Meanwhile, credit to the private sector remained strong at 11%, indicating rising business confidence amid easing financial conditions. However, the SBP noted a sharp rise in reserve money, attributed to seasonal currency demand around Eid and increased liquidity injections to keep interbank rates aligned with the policy rate.
Looking ahead, the SBP projects inflation to gradually rise and stabilize within the 5–7% range. However, this outlook is subject to risks from regional geopolitical tensions, oil price volatility, and potential supply-side disruptions.
In conclusion, the SBP’s decision to hold the policy rate at 11% reflects a balanced approach to support economic recovery while guarding against inflationary pressures and external sector vulnerabilities. The MPC reaffirmed its commitment to data-driven decisions and vigilant monitoring of domestic and international developments to adjust the policy rate as needed.