State Bank Maintains Policy Rate at 11% Amid Economic Outlook

Karachi: The State Bank of Pakistan has decided to keep the policy rate unchanged at 11% following a meeting of its Monetary Policy Committee. The meeting, held today in Karachi, was focused on reviewing the country’s economic situation and determining the course of monetary policy for the next one and a half months.
A detailed statement was issued after the meeting, outlining the key decisions and insights related to the monetary policy. According to the statement, inflation in May increased to 3.5% from 0.3% in April, driven by the base effect of food prices and persistent core inflation. However, energy prices are lower than last year, a result of global oil price softening.
The statement further noted that the impact of the budget measures on inflation is expected to be limited. While short-term inflation fluctuations are possible, inflation is anticipated to stabilize gradually within the target range of 5-7% in the coming months. Geopolitical tensions in the region could cause supply chain disruptions and further inflationary pressures. Additionally, fluctuations in global oil prices and other commodities are expected.
The statement highlighted that changes in domestic energy prices could contribute to inflation, but the real interest rate remains positive, which is conducive to controlling inflation. It also projected a current account surplus of $1.9 billion for fiscal year 2025, though a moderate deficit is expected in the following year. The government’s fiscal deficit has decreased, with a target of a 2.4% primary surplus.
Furthermore, private sector loans have increased by 11%, reflecting improving financial conditions. The central bank confirmed that the policy rate would remain at 11%, emphasizing that inflation, as expected, rose to 3.5% year-on-year in May, with a slight decrease in core inflation. Additionally, inflation expectations from households and businesses showed some moderation.
The statement indicated that inflation would gradually increase in the coming months but is expected to stabilize within the 5-7% target range by FY26. Economic growth is picking up, which may further boost the effects of policy rate cuts. However, external sector risks remain, such as rising trade deficits and lower financial inflows.
The State Bank also cautioned that certain measures in the 2025-26 budget could increase imports and widen the trade deficit.
It is worth noting that in the previous meeting held on May 5, the State Bank had reduced the policy rate by 1%, setting it at 11%. This decision was positively received by business circles and economic experts, with many suggesting that further rate cuts could be on the horizon to support economic activity and potential inflation reduction.