The Monetary Policy Committee has officially decided to maintain the policy rate at 10.5 percent following its high-level meeting on March 9, 2026. This decision comes at a pivotal time for the national economy, as financial indicators show a shift in liquidity and credit appetite across various sectors. During the period spanning July 1 to February 27 of the 2026 fiscal year, the broad money supply, known as M2, recorded a growth of 3.5 percent. This movement represents a notable recovery compared to the same period in the previous year, which saw a contraction of 0.4 percent. The expansion in money supply suggests a more active financial environment as the country navigates evolving fiscal demands and industrial requirements.
A deeper look into the components of the money supply reveals significant growth in both foreign and domestic assets within the banking system. The Net Foreign Assets of the banking sector witnessed an increase of Rs. 886.1 billion, outpacing the Rs. 747.4 billion growth recorded during the previous year. Simultaneously, Net Domestic Assets saw a substantial rise of Rs. 523.3 billion, a sharp reversal from the Rs. 873.1 billion decrease noted in the same timeframe last year. This dual growth highlights a strengthening of the banking system’s balance sheets and a broader distribution of capital within the domestic economy, providing a foundation for sustained commercial activity.
Government and private sector borrowing trends also provide insight into the current fiscal landscape. Under the umbrella of budgetary support, government borrowing rose to Rs. 377.3 billion, a significant jump from the modest Rs. 26.5 billion borrowed in the previous year. However, it is the private sector that has shown the most robust engagement with the credit market. Total private sector borrowing reached Rs. 928.7 billion, compared to Rs. 607.5 billion last year. Within this category, credit extended to private sector businesses increased to Rs. 749.4 billion. Most encouragingly, the demand for fixed investment loans surged to Rs. 369.6 billion, nearly doubling from Rs. 187.4 billion in the prior period, indicating that businesses are increasingly investing in long-term capacity building and infrastructure.
Despite these positive signals in credit and investment, the capital markets faced a difficult period during February 2026. The Pakistan Stock Exchange witnessed a bearish trend as the KSE-100 Index shed 16,112 points, eventually closing the month at 168,062.2. This downward movement was largely attributed to investor caution resulting from persistent geopolitical tensions within the region, which dampened sentiment across the board. Consequently, total market capitalization saw a decline of Rs. 1,897.3 billion, settling at Rs. 18,930.2 billion by the end of the month. While the equity market remains sensitive to external pressures, the stability of the policy rate and the rise in fixed investment loans suggest an underlying industrial resilience that policymakers hope will anchor the economy through the remainder of the fiscal year.
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