The interest rate Pakistan State policy has been kept unchanged at 10.5 percent after the Monetary Policy Committee’s latest meeting, as the central bank opted for stability in monetary policy amid controlled inflation, improving growth indicators, and a stable external sector outlook.
The State Bank of Pakistan (SBP) has decided to keep the policy interest rate unchanged at 10.5 percent for the next one and a half months, following a meeting of the Monetary Policy Committee (MPC) held in Karachi on Tuesday.
After the meeting, SBP Governor Jameel Ahmad announced the decision during a press conference, confirming that the central bank had opted for stability in monetary policy amid mixed economic indicators. The policy rate will remain at its current level until the next review.
Alongside the interest rate decision, the central bank also announced a reduction in the cash reserve requirement for banks. The mandatory deposit ratio for banks was reduced by one percentage point, bringing it down from 6 percent to 5 percent, a move aimed at improving liquidity in the banking system.
Inflation and Economic Trends
According to the Monetary Policy Committee, inflation remained relatively stable in recent months. Headline inflation in December stood at 5.6 percent, while core inflation was recorded at 7.4 percent. The committee noted that inflation is expected to remain within the 5 to 7 percent target range during the current fiscal year.
The MPC also observed that the pace of economic growth has been stronger than earlier expectations. Economic growth is projected to reach up to 4.75 percent in fiscal year 2026, supported by improvements in industrial activity, credit expansion, and domestic demand.
Trade, Current Account and External Sector
The committee highlighted that imports have increased, leading to a rise in the trade deficit. However, the current account deficit has remained under control due to support from remittances and information and communication technology (ICT) exports.
In December 2025, the current account deficit stood at $244 million, while the cumulative deficit for the first half of the fiscal year reached $1.2 billion. Despite the pressure from higher imports and lower exports, external inflows helped stabilize the overall position.
Foreign exchange reserves were reported at $16.1 billion, with projections indicating that reserves could exceed $18 billion by June 2026, reflecting improved external stability and financial inflows.
Fiscal Performance and Revenue Challenges
The MPC noted challenges on the fiscal side, particularly in revenue collection. The Federal Board of Revenue (FBR) missed its revenue target, recording a shortfall of Rs329 billion. This gap was highlighted as a key concern for fiscal management and budget planning.
To support financial activity, the reduction in the cash reserve ratio for banks was introduced as a liquidity-supportive measure, expected to enhance credit availability and improve financing conditions for businesses.
Growth Indicators and Private Sector Credit
Private sector credit showed a notable increase, with an expansion of Rs578 billion recorded during the current fiscal year. The rise in credit indicates improving business confidence and increased economic activity.
GDP growth in the first quarter of the current fiscal year reached 3.7 percent, compared to 1.6 percent in the same period last year. Growth momentum was supported by higher auto sales, increased cement production, growth in POL (petroleum, oil, and lubricants) products, fertilizers, and rising machinery imports.
Large-scale manufacturing (LSM) recorded a cumulative growth of 6 percent from July to November, reflecting recovery in industrial output and production capacity.
Outlook for the Economy
The Monetary Policy Committee expressed cautious optimism about the economic outlook. Favorable prospects for the wheat crop, improving industrial performance, and stronger private sector activity are expected to support growth in the coming months.
Overall economic growth for the current fiscal year is projected to remain between 3.75 percent and 4.75 percent, indicating a gradual recovery trajectory.
The MPC also recalled that in the previous monetary policy review, the central bank had reduced the policy rate by 50 basis points, bringing it down to the current level of 10.5 percent. The policy rate has remained in double digits for the past four years, reflecting prolonged tight monetary conditions.