Pakistan’s Central Bank Holds Steady on Interest Rates Amid Improved Economic Outlook

KARACHI: The State Bank of Pakistan (SBP) has decided to maintain its policy rate at 11%, as anticipated by market analysts. This decision follows a meeting of the Monetary Policy Committee (MPC), which highlighted a more optimistic economic outlook than previously expected.

The MPC’s recent statement noted that the effects of recent floods on the country’s economy are likely to be less severe than initially projected in September 2025. Consequently, the SBP has revised its GDP growth forecast for the fiscal year 2026, predicting it will fall in the upper half of the 3.25% to 4.25% range.

In terms of debt servicing, Pakistan has already paid $3.1 billion out of the $10 billion net repayable amount for FY26. The central bank also anticipates the release of a $1.2 billion installment from the International Monetary Fund (IMF) following a scheduled board meeting in December 2025, having met all review criteria.

The SBP expects the current account deficit to remain between 0% and 1% of GDP. Additionally, the outlook for remittances shows improvement, with predictions exceeding $41 billion for FY26.

Over the past three years, the SBP has engaged in foreign exchange interventions totaling over $20 billion, a trend that continues to meet repayment and repatriation needs. Inflation is projected to surpass the target range’s upper bound for a few months in the second half of FY26, but the SBP expects it to return to target levels by FY27.

Lastly, while the import volumes have been absorbed, any unexpected fluctuations in oil prices could impact the import bill, posing a potential concern for the SBP.