KARACHI — Defying market expectations, State Bank of Pakistan (SBP) kept its benchmark policy rate unchanged at 11%.
As Analysts widely anticipated a rate cut of 50 to 100 basis points, Monetary Policy Committee (MPC) cited emerging inflation risks and external pressures as reasons for maintaining the status quo.
SBP Governor Jameel Ahmad said the committee weighed multiple economic indicators before reaching its conclusion. While inflation in June 2025 eased to 3.2% year-on-year—driven largely by lower food prices—and core inflation also declined, the MPC expressed concern over the inflationary impact of recent increases in energy tariffs.
“Although inflation has moderated, adjustments in gas and fuel prices have introduced new risks,” the MPC stated. “Still, inflation is expected to remain largely within the 5–7% target range going forward.”
The committee noted that economic activity is continuing to strengthen, reflecting the delayed effects of previous rate cuts. However, it warned that a widening trade deficit could present new challenges as domestic demand rises and global trade slows.
The central bank stressed that a sufficiently positive real interest rate is crucial to keeping inflation anchored. It also underscored the importance of maintaining a careful balance between fiscal and monetary policies to ensure macroeconomic stability.
Looking ahead, the MPC warned of rising energy inflation due to significant gas tariff hikes, the expiration of temporary relief in electricity rates, and recent increases in motor fuel prices. It cautioned that monthly inflation may exceed the target range of 5–7% at times during FY26.
SBP chief also shared that average inflation for FY25 stood at 4.5%, slightly below the target range. He noted that food and core inflation had both declined.
