The State Bank of Pakistan on Wednesday 13th August 2025, released its first Monetary Policy Report, described the reasons that as to why the Monetary Policy Committee decided to maintain the policy rate at 11% despite improvements in key economic indicators.
Reasons Behind the Decision
The MPC acknowledged recent improvements in Pakistan’s macroeconomic conditions but considered potential domestic and global risks. These include fluctuating international commodity prices, uncertain global trade, and unexpected changes in domestic energy prices.
Economic Outlook
According to the report, maintaining the policy rate at 11% in June and July is expected to keep the real policy rate positive, helping stabilize inflation in the medium term. Real GDP growth is projected to range between 3.25% and 4.25% in FY26, while the trade deficit could widen, leading to a current account deficit of 0-1% of GDP.
The SBP expects foreign inflows and continued inter-bank FX purchases to increase its reserves to $15.5 billion by December 2025. Economic activity is also expected to strengthen further as the effects of earlier policy rate cuts continue to unfold.
Recent Economic Trends
For FY 2024-25, real GDP growth rose to 2.7% without causing major inflation or external account pressure. Business sentiment surveys from SBP-IBA show a gradual revival in economic and investment activity.
External and Domestic Risks
The MPR highlighted several risks to Pakistan’s economic outlook:
- Global risks: High trade uncertainty and volatile commodity prices, especially energy and food, could affect inflation and the balance of payments.
- Domestic risks: Heavy rains and flooding in some areas may raise prices of perishable food items and impact inflation.
- Other risks: Tight global financial conditions and sudden adjustments in administered energy prices could affect both inflation and overall economic growth.
Policy and Structural Measures
The SBP stressed the importance of maintaining prudent monetary and fiscal policies and implementing structural reforms to strengthen the economy and manage risks effectively.
Additional Insights
The MPR includes five detailed sections discussing monetary policy theory, communication strategies, and other global and domestic economic issues relevant for policymakers and stakeholders.
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