In a move that caught analysts off guard, the State Bank of Pakistan (SBP) has kept its key interest rate at 11%, defying widespread expectations of a rate cut.
The decision was announced by SBP Governor Jameel Ahmed following the Monetary Policy Committee (MPC) meeting in Karachi.
Many analysts had anticipated another cut, especially after inflation cooled significantly in recent months. But the central bank has chosen to hit the brakes—for now.
"Inflation reached its lowest in April, but edged up slightly in May and June," said Governor Ahmed, citing rising energy prices and base effects as the primary drivers. He warned that inflation could rise moderately in the coming months, largely due to ongoing pressure on energy prices.
Despite the hold on rates, the governor struck an optimistic tone regarding macroeconomic stability in Pakistan. He confirmed that exports have grown by 4%—a positive sign for the economy. “A rise in exports is crucial to maintain current account stability,” he added.
He also highlighted a major boost in worker remittances, which surged by $8 billion. This influx played a significant role in keeping the current account in surplus. “Even after making $26 billion in external payments, our foreign exchange reserves rose by $5 billion,” he added, noting Pakistan’s commitment to meeting all debt obligations on time.
The agricultural sector is also showing signs of life, offering hope that broader economic recovery is on the horizon.
This policy decision comes amid ongoing reforms under a $7 billion IMF program and a tough contractionary budget aimed at reining in deficits. The central bank had previously lowered rates by 100 basis points in May, following a pause in March. Since June 2024, the SBP has slashed its key interest rate by a total of 1,100 basis points from a record high of 22%, reflecting easing price pressures.
A Reuters poll earlier this week showed unanimous expectations of a rate cut among 15 analysts, with most forecasting a 50 to 100-basis-points reduction. The SBP’s decision to hold has, therefore, taken many by surprise.
While headline inflation slowed to 3.2% in June and is expected to remain between 3.5% and 4.5% in July, it still falls comfortably within the central bank’s target range of 5.5% to 7.5% for the fiscal year ending June 2026.
However, not everyone is cheering. The IMF has lowered its growth forecast for Pakistan to 3.6%, well below the government's 4.2% target, warning that economic growth remains fragile. Analysts also caution that fluctuations in global commodity prices could put fresh pressure on both inflation and the country’s external balances.
Still, the SBP’s decision to hold the key interest rate suggests a cautious optimism—acknowledging the progress made, while keeping an eye on potential risks ahead.
