Pakistan’s monetary authorities opted for policy continuity at the start of 2026, as the Monetary Policy Committee of the State Bank of Pakistan decided in its January 26 meeting to maintain the benchmark policy rate at 10.5 percent. The decision aligns with the central bank’s objective of supporting sustainable economic growth while maintaining price stability amid evolving domestic and external conditions.
Monetary aggregates show moderate expansion during the fiscal year to date. Between July 1 and January 30 FY2026, broad money supply (M2) grew by 2.3 percent, compared to a contraction of 1.0 percent during the same period last year. The shift from contraction to expansion reflects changing liquidity dynamics within the banking system.
Within M2, net foreign assets of the banking system increased by Rs. 473.5 billion, although this was lower than the Rs. 744.0 billion rise recorded in the corresponding period last year. Meanwhile, net domestic assets rose by Rs. 459.8 billion, reversing a sharp decrease of Rs. 1,115.2 billion seen during the same timeframe in FY2025. The turnaround in domestic asset growth indicates renewed lending and fiscal flows within the local economy.
Government borrowing patterns also shifted compared to the previous year. Under borrowing for budgetary support, the government borrowed Rs. 158.9 billion during Jul–Jan FY2026, contrasting with the retirement of Rs. 1,105.7 billion recorded in the same period last year. The moderated borrowing requirement corresponds with improved fiscal indicators observed during the first half of the fiscal year.
Private sector credit expansion remained positive, though at a slower pace than last year. The private sector borrowed Rs. 711.4 billion during the period, compared to Rs. 1,017.8 billion in FY2025. Within this segment, loans to private sector businesses increased to Rs. 513.4 billion, compared to Rs. 1,074.1 billion in borrowing during the same period last year. Although overall borrowing moderated, business financing continued to show activity.
Demand for fixed investment loans within business financing rose to Rs. 236.0 billion, compared to Rs. 197.0 billion during the corresponding period last year. The increase in fixed investment demand signals ongoing capital expenditure activity and suggests that segments of the corporate sector are positioning for capacity expansion despite a stable interest rate environment.
Equity markets reflected renewed investor confidence during January 2026. The Pakistan Stock Exchange witnessed robust performance, with the KSE-100 Index gaining 10,120 points over the month. The benchmark index closed at 184,174.5 points, indicating strong buying momentum and positive sentiment across listed sectors.
Market capitalization expanded significantly, increasing by Rs. 1,137.6 billion to reach Rs. 20,827.5 billion by the end of January. The surge in valuation highlights improved liquidity flows and growing risk appetite among investors amid stable monetary policy conditions.
Overall, the January policy decision to hold the benchmark rate steady at 10.5 percent coincided with moderate money supply growth, positive credit flows to businesses, and a strong rally in equity markets. The combined trends suggest a financial environment characterized by cautious monetary management, gradual liquidity expansion, and strengthening investor confidence in capital markets.
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