Pakistan’s central bank, the Monetary Policy Committee (MPC), opted to hold its key interest rate steady at 22% today. This decision comes despite signs of a moderate economic recovery, as the MPC prioritizes its battle against inflation. The MPC highlighted that while inflation has shown a welcome decline in recent months, it remains significantly above the target range of 5-7% set for September 2025. Recent geopolitical events and the potential for a rebound in global commodity prices raise concerns about future inflationary pressures. Additionally, the MPC acknowledged the potential impact of upcoming budgetary measures on inflation.
On the positive side, Pakistan’s economy has shown signs of a moderate recovery in the first half of the fiscal year, driven by a strong agricultural sector. The country’s external position has also improved, with a significantly narrowed current account deficit thanks to a surplus in March and lower imports. The government’s efforts towards fiscal consolidation, evident in increased revenue collection, are another encouraging sign.
Looking ahead, the MPC remains committed to bringing down inflation, even if it means keeping interest rates high. Building up foreign exchange reserves to better weather external shocks is also a key priority for the central bank. However, the outlook is not without risks. Potential increases in global oil prices and the impact of resolving energy sector debt could put upward pressure on inflation in the coming months. The MPC’s decision reflects a cautious approach, balancing the need for economic growth with the fight against inflation. The coming months will be crucial in determining the effectiveness of Pakistan’s economic policies.