The State Bank of Pakistan (SBP) on Monday decided to maintain its key policy rate at 10.5%, surprising market participants who had widely anticipated a cut. Addressing a press conference, SBP Governor Jameel Ahmed said the policy rate would remain unchanged for the next two months.
In its statement, the SBP highlighted that headline inflation of 5.6% year-on-year in December 2025 was in line with expectations, while core inflation remained elevated at 7.4%. Economic activity, particularly in domestic-oriented sectors, continues to gain momentum, supported by growth in large-scale manufacturing, auto sales, cement dispatches, fertiliser off-take, petroleum product sales, and machinery imports. Real GDP grew 3.7% year-on-year in the first quarter of FY26, up from 1.6% in the same period last year.
The SBP noted that while the trade deficit widened due to rising imports and declining exports, resilient workers’ remittances and benign global commodity prices helped contain the current account deficit, which stood at $244 million in December 2025. The central bank expects reserves to surpass $18 billion by June 2026.
The Monetary Policy Committee (MPC) said the outlook for inflation and the current account remains broadly unchanged, while economic growth projections have improved, with GDP growth now estimated between 3.75% and 4.75% for FY26.
The SBP also announced a reduction in the average Cash Reserve Requirement for banks from 6% to 5%, aiming to boost private sector credit, which has expanded by Rs578 billion so far this fiscal year.
Analysts described the decision as a surprise. A majority had expected a rate cut, citing easing inflation, rising forex reserves, and government measures such as reduced cut-off yields. Local business leaders, however, said previous rate reductions had been insufficient to restore investor confidence or revive economic activity.
The SBP stressed the importance of a coordinated monetary and fiscal policy mix, alongside structural reforms, to ensure price stability and sustainable growth.