The recent reduction in the policy rate reflects well-anchored inflation expectations and growing confidence in Pakistan’s macroeconomic stability, alongside a strong recovery in equity markets. The Monetary Policy Committee, in its meeting held on December 15, 2025, decided to cut the policy rate by 50 basis points, bringing it down to 10.5 percent. The decision was supported by signs of sustainable economic growth and improving price stability, indicating a cautious but positive outlook for the economy.
Monetary aggregates during the early months of FY2026 also point toward contained liquidity conditions. During the period from July 1 to November 28 FY2026, money supply (M2) contracted by 0.1 percent, compared to a sharper contraction of 1.1 percent recorded during the same period last year. This moderation suggests a more balanced monetary environment, aligned with the central bank’s efforts to support growth while keeping inflation under control.
Within the components of money supply, Net Foreign Assets of the banking system increased by Rs. 142.9 billion during the period, although this rise was lower than the Rs. 495.1 billion increase recorded last year. At the same time, Net Domestic Assets of the banking sector declined by Rs. 168.2 billion, compared to a significantly larger contraction of Rs. 901.3 billion in the corresponding period of the previous year. These trends reflect adjustments in both external and domestic liquidity conditions.
On the fiscal side, government borrowing patterns showed continued discipline. Under net borrowing for budgetary support, the government retired Rs. 804.7 billion during Jul–Nov FY2026, compared to a much larger retirement of Rs. 2,166.9 billion in the same period last year. Meanwhile, private sector credit expansion remained modest, with private sector borrowing amounting to Rs. 186.8 billion, significantly lower than Rs. 1,300.7 billion recorded during the corresponding period of FY2025.
The easing of monetary policy and improving macroeconomic indicators were reflected in the performance of the Pakistan Stock Exchange. The equity market witnessed a strong recovery in November 2025, with the KSE-100 Index gaining 5,046 points during the month. The benchmark index closed at 166,677 points, highlighting renewed investor confidence and increased buying interest across sectors.
Market capitalization also recorded a notable increase, rising by Rs. 305 billion to reach Rs. 18,866 billion by the end of November 2025. The rise in market value indicates improved sentiment among investors, supported by expectations of lower borrowing costs, stable inflation, and strengthening economic fundamentals.
Overall, the policy rate cut, combined with contained money supply growth and a robust stock market performance, underscores a cautiously optimistic outlook for Pakistan’s economy. Stable inflation expectations and renewed investor confidence suggest that supportive monetary conditions could continue to play a role in sustaining economic momentum during FY2026.
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