State Bank of Pakistan (SBP) has unveiled its bi-annual Monetary Policy Report (MPR), outlining the economic conditions that shaped the Monetary Policy Committee’s (MPC) decisions since January 2026.
According to the MPR, macroeconomic conditions during the review period were significantly affected by geopolitical developments.
The Middle East conflict triggered sharp increases in global energy prices, freight and insurance costs, while also disrupting supply chains.
Despite the shock, Pakistan’s macroeconomic performance in FY26 remained broadly within the projection ranges announced after the January MPC meeting.
The SBP’s cautious monetary policy helped contain the second-round impact of higher energy prices and kept inflation expectations anchored. At the same time, the government maintained fiscal discipline by passing higher global prices on to domestic consumers, while introducing targeted subsidies and austerity measures to conserve energy.
These steps helped restrain aggregate demand and limit demand-side pressures.
The SBP expects inflation to moderate and stabilise near the upper end of its target range by the end of FY27. Economic growth is projected to strengthen and remain between 3.5% and 4.5%.
The current account deficit is expected to stay within 0–1% of GDP, supporting continued foreign exchange purchases by the SBP and helping the central bank achieve its foreign exchange reserves target of $20.2 billion by December 2026. Reserves are projected to increase further by the end of FY27.
The report also identified several risks to the economic outlook, including Middle East situation, which could push global energy and commodity prices above current assumptions. Climate-related threats, including evolving El Niño conditions and flooding, could also weigh on economic activity.
The SBP warned that delays in structural reforms could further weaken exports, constrain productivity gains and limit the economy’s ability to sustain higher growth without creating inflationary and external-sector pressures.
The MPR also contains six analytical boxes examining key issues related to inflation and monetary policy.
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