Governor of the State Bank of Pakistan (SBP), Jameel Ahmad, has announced that any further reduction in the policy interest rate will be closely linked to the outcome of Pakistan’s ongoing review with the International Monetary Fund (IMF) and the economic consequences of recent floods across the country. His remarks come as inflation begins to stabilize, but the central bank remains vigilant amid global and domestic economic uncertainties.
In an interview with Bloomberg, Governor Ahmad emphasized that the SBP remains “very cautious” on monetary policy even after initiating an easing cycle following a prolonged period of tightening. He highlighted that renewed inflationary pressures stemming from flood-related supply disruptions and continued external financing risks could constrain further monetary policy relaxation in the near term.
Ahmad projected that inflation could temporarily breach the upper end of the 5%–7% medium-term target range in early 2026 due to supply-side pressures but would likely remain within this range on average over the current and next fiscal years. His comments precede the upcoming Monetary Policy Committee (MPC) meeting scheduled for October 27, where the central bank is expected to assess inflation dynamics, exchange rate stability, and fiscal coordination before deciding on the next policy rate adjustment.
The governor’s statements coincide with the IMF’s ongoing second review of Pakistan’s $7 billion Extended Fund Facility (EFF). The review is expected to conclude later this month, with Islamabad anticipating the release of approximately $1 billion in disbursements upon its successful completion. The outcome of this review will be critical in shaping future fiscal and monetary strategies.
Last month, the SBP maintained its benchmark rate unchanged for the third consecutive meeting. The decision followed devastating monsoon floods that killed over 1,000 people, displaced more than four million, and damaged nearly 8% of Pakistan’s cropped land, intensifying food inflation and threatening rural livelihoods.
Ahmad noted that the central bank’s stringent monetary policy had been instrumental in curbing inflation, stating that the current rate remains positive in real terms. He added that coordination between fiscal and monetary authorities has shown meaningful progress, particularly in managing external financing and stabilizing the exchange rate.
Pakistan’s economy, which narrowly escaped default two years ago, has gradually regained stability supported by IMF funding that helped in debt servicing and reserve accumulation. Economic growth is projected to reach 4.2% in FY2025, compared to 2.7% in the previous fiscal year, while inflation has eased significantly from its record 38% peak in 2023. This has allowed the SBP to halve its policy rate to 11%.
The governor further revealed that Pakistan has exceeded several IMF performance targets, particularly in foreign exchange management. The SBP has purchased nearly $20 billion from the interbank market over the past three years — a strategy Ahmad described as “critical” in strengthening the country’s reserves and insulating them from external shocks. SBP reserves have surged from a low of $3 billion in 2023 to nearly five times that level, while the Pakistani rupee has remained one of Asia’s most stable currencies since 2024, according to Bloomberg’s regional index.
Ahmad also pointed to improving trade and investment relations with the United States. He noted that Pakistan’s 19% tariff rate on exports to the US is now the lowest in South Asia, helping attract renewed international interest, especially in the textile sector. Exporters have reported an uptick in inquiries from foreign buyers, which could translate into firm orders in the coming months.
Additionally, the governor confirmed growing US investor interest in Pakistan’s oil and mining sectors. A major investment conference in Washington later this month is expected to draw significant attention from American companies seeking new opportunities in Pakistan.
In another development, Ahmad stated that the government is progressing toward the legalization and regulation of cryptocurrency. The move, he explained, aims to ensure better oversight and transparency, reducing financial risks and promoting responsible participation in the digital asset space.
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