The State Bank of Pakistan (SBP) announced on Monday that it will maintain its benchmark policy interest rate at 10.5% during its first Monetary Policy Committee (MPC) meeting of 2026. The decision was confirmed by SBP Governor Jameel Ahmad, who also highlighted that inflation could exceed 7% in some months during the second half of the current year. The central bank projects Pakistan’s GDP growth to range between 3.75% and 4.75% for 2026, reflecting a relatively optimistic growth outlook.
In its detailed MPC statement, the central bank noted that headline inflation of 5.6% year-on-year in December 2025 was in line with expectations, while core inflation has stabilized at a higher 7.4%. Economic activity, particularly in domestic-oriented sectors, continues to gain momentum faster than anticipated, as indicated by high-frequency indicators such as large-scale manufacturing (LSM).
Despite a widening trade deficit driven by higher import volumes and weaker exports, the current account deficit remains relatively contained thanks to resilient workers’ remittances and moderate global commodity prices. Based on these factors, the MPC determined that holding the policy rate steady would help balance price stability with sustainable economic growth. The committee projects that inflation will remain within the 5–7% target range in FY26 and FY27, despite temporary upward pressure in the coming months.
Market experts had largely expected the SBP to reduce the policy rate, with some forecasting cuts of 50–75 basis points, citing lower inflation readings, stable external accounts, and declining bond yields. Brokerage firms such as Arif Habib Limited and Topline Securities anticipated rate cuts, suggesting a potential return to single-digit interest rates. However, the SBP opted to maintain the current level, emphasizing prudence amid global commodity price volatility, domestic wheat price fluctuations, and potential demand surges.
Business representatives, including Saqib Fayyaz Magoon, Chairman of the Businessmen Panel Progressive and Senior Vice President of FPCCI, had urged the government to lower the policy rate to provide relief to industry and exporters. High borrowing and energy costs were cited as major constraints on industrial output and competitiveness. Magoon called for a reduction of at least 100 basis points to support growth.
Key developments considered by the MPC include a provisional real GDP growth of 3.7% year-on-year for Q1-FY26, improved consumer and business confidence, easing inflation expectations, FX reserves surpassing $16 billion, and slower FBR revenue growth at 7.3% in December. The IMF has slightly upgraded global growth forecasts for 2026, while warning of risks from trade tensions and volatile commodity markets.
The MPC emphasized that a positive real policy rate is critical to stabilizing inflation within the target range and highlighted the importance of coordinated fiscal and monetary policies alongside structural reforms to enhance exports and sustain high economic growth.
By holding rates steady, the SBP aims to ensure a balanced approach that supports economic recovery while keeping inflationary pressures in check, signaling a cautious yet growth-friendly monetary policy stance for Pakistan in 2026.
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