SBP holds rate on inflation, ME risks
KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday decided to keep the policy rate unchanged at 11.5 percent, noting that recent domestic macroeconomic developments remained broadly in line with its expectations. Although risks to the inflation outlook have increased significantly, the MPC believes the FY27 inflation outlook remains broadly unchanged from…
On Monday, the State Bank of Pakistan's Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11.5 percent, citing that recent domestic macroeconomic developments remained in line with their expectations. The MPC acknowledged that risks to the inflation outlook had increased significantly, but they still anticipate inflation to gradually ease toward the upper range of the 5 to 7 percent target by June 2027.
The main risks identified include global commodity price volatility, electricity and gas tariff adjustments, supply disruptions, and unexpected food price movements due to worsening El Niño conditions.
The MPC's meeting, chaired by Governor Jameel Ahmad, saw seven out of the ten members vote to maintain the status quo, with three consecutive meetings maintaining the same rate. The Committee emphasized the need for a balanced monetary and fiscal policy mix, stronger buffers to absorb supply shocks, and timely structural reforms to boost resilience, productivity, and sustainable growth.
Recent geopolitical conflicts, particularly in the Middle East, have driven global commodity prices higher and prolonged supply chain disruptions. Despite this, domestic macroeconomic data has generally aligned with expectations. Headline inflation rose to 11.1 percent year-on-year in August from 9.2 percent in July, while core inflation was slightly below expectations. External account pressures have remained contained, supported by strong worker remittances and higher financial inflows.
The MPC assessed that the current monetary policy stance is appropriate to guide inflation toward the target range of 5-7 percent over the medium term. However, uncertainty has increased due to the deteriorating geopolitical environment. The Committee noted several key developments, such as Pakistan's sovereign rating upgrade by Moody's to B3 with a stable outlook, a USD 3 billion Eurobond issuance, rising inflation expectations, weakening business and consumer confidence, a 3.5 percent decline in large-scale manufacturing in June, and successful fiscal consolidation exceeding the budget target.
The FBR tax collection remained on track in July-August of the current fiscal year, while SBP transferred Rs1.9 trillion in profit to the government, surpassing the Rs1.4 trillion budgeted amount. Central banks have become more cautious amid challenging global economic conditions. The MPC reiterated its commitment to achieve price stability and closely monitor incoming data, as well as the evolving risks in the Middle East.
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