Pakistan’s monetary sector demonstrated steady performance during the early months of FY2026, with policymakers adopting a cautious stance to support price stability amid evolving domestic and global economic conditions. In its latest meeting, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 11.0 percent, unchanged since June 2025, reflecting a balanced approach to ensure economic momentum while managing inflationary pressures.
The committee’s decision was guided by favorable high-frequency economic indicators and the assessment that flood-related supply disruptions had been less severe than initially anticipated. Although minor supply constraints are expected to persist, these are projected to ease over the coming months. The MPC also considered external and domestic risk factors, including volatility in global commodity prices, shifting export prospects due to evolving tariff dynamics, and potential frictions in domestic food supply chains.
Monetary aggregates during July to October FY2026 painted a mixed but stable picture. Broad money supply (M2) recorded a negative growth of 1.0 percent, an improvement compared to the negative 1.7 percent contraction observed in the same period last year. Within M2, Net Foreign Assets of the banking system increased by Rs. 204.5 billion, slightly lower than the Rs. 324.2 billion increase last year. Meanwhile, Net Domestic Assets declined by Rs. 605.0 billion, reflecting a moderation from the Rs. 914.6 billion decrease in the previous year.
Government borrowing for budgetary support also showed signs of moderation. During the period, the government retired Rs. 1,078.4 billion in borrowings, compared to Rs. 1,432.4 billion last year, while private sector credit contracted significantly, with borrowing amounting to Rs. 66.1 billion versus Rs. 806.3 billion in the prior year. This indicates tighter credit conditions for businesses, likely driven by cautious lending behavior and broader economic adjustments.
Despite stable monetary conditions, Pakistan’s equity market faced a bearish phase in October 2025. The Pakistan Stock Exchange’s benchmark KSE-100 Index declined by 3,862 points, closing at 161,631 by month-end. Market capitalization contracted by Rs. 702 billion, reaching Rs. 18,561 billion. Analysts attributed the downturn to a combination of global market volatility, cautious investor sentiment, and lingering uncertainties regarding trade, commodity prices, and domestic fiscal dynamics.
Overall, the monetary policy stance reflects a careful balance between fostering economic activity and ensuring price stability, while the bearish trend in the equity market highlights cautious investor sentiment amid ongoing domestic and international uncertainties. Going forward, continued monitoring of monetary aggregates, domestic credit flows, and global market developments will remain essential to sustaining macroeconomic stability in Pakistan.
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