Karachi, March 10, 2025 – The State Bank of Pakistan (SBP) has decided to keep its benchmark policy rate at 12%, as the Monetary Policy Committee (MPC) expressed concerns over inflationary risks amidst a mix of stabilizing and emerging economic challenges. The decision underscores the central bank’s cautious approach in balancing inflation control and economic growth, given the complex economic landscape.
The MPC’s meeting highlighted that while inflation for February 2025 was lower than anticipated, driven by declines in food and energy prices, inflationary pressures remain a key concern. The SBP pointed out that core inflation, which excludes volatile food and energy prices, remains persistently high. Any resurgence in food or energy prices could reverse the recent downward trend in inflation, further complicating the inflation control efforts.
Despite inflationary risks, the SBP also noted encouraging signs of economic growth. Key high-frequency economic indicators suggest that Pakistan’s economy is on a positive trajectory, with growth in several sectors. However, rising import pressures, coupled with weak financial inflows and ongoing debt repayments, have put strain on the external account, posing a challenge to future economic stability and the outlook for the policy rate.
The MPC assessed that the real interest rate in Pakistan remains sufficiently positive, which should support macroeconomic stability moving forward. However, the latest economic data indicates emerging challenges. Notably, Pakistan’s current account, which had been in surplus for several months, posted a deficit of $0.4 billion in January 2025. This deficit, combined with declining financial inflows and increased debt repayments, led to a reduction in SBP’s foreign exchange reserves.
While there have been setbacks in some sectors, Pakistan’s economic growth remains on track. Large-scale manufacturing contracted by 1.9% in the first half of FY25. However, key industries such as textiles, pharmaceuticals, and automobiles showed resilience, helping to mitigate the downturn. Additionally, recent rainfall has improved prospects for the Rabi crop, which provides a much-needed boost to the agricultural sector. The SBP maintains its GDP growth projection for FY25 at 2.5% to 3.5%, with expectations for further growth in the latter half of the fiscal year.
On the external front, Pakistan’s current account surplus has narrowed significantly to $0.7 billion for the period of July to January in FY25, driven largely by accelerating imports. The rise in global commodity prices and increased demand for imports have placed additional pressure on the trade balance. However, positive contributions from workers’ remittances and moderate export growth have helped alleviate some of the pressure on the country’s foreign exchange reserves. The SBP remains optimistic, forecasting that foreign exchange reserves will exceed $13 billion by June 2025, aided by lower debt repayments and expected inflows from official channels.
Despite some positive developments, the MPC emphasized that maintaining monetary stability is crucial for controlling inflation and ensuring long-term economic growth. The central bank reiterated its commitment to keeping inflation within its target range of 5–7%. With global economic uncertainties continuing to loom, the SBP also highlighted the importance of fiscal discipline and structural reforms to support macroeconomic stability.
In conclusion, while Pakistan’s economy faces significant hurdles, including inflation risks and external challenges, the SBP’s decision to maintain the policy rate at 12% signals a careful balancing act aimed at supporting inflation control while nurturing growth. With global uncertainties still a factor, the bank’s cautious stance is likely to persist as policymakers work to navigate the country’s economic recovery.