The State Bank of Pakistan (SBP) has decided to keep its key policy rate unchanged at 11.5%, signaling a cautious approach as inflationary pressures continue to challenge the economy.
The decision was announced following the latest meeting of the Monetary Policy Committee (MPC), which reviewed recent economic developments and assessed risks to growth and price stability. While inflation has accelerated in recent months, the committee believes that the current monetary policy stance remains appropriate to steer inflation back toward its medium-term target range of 5% to 7%.
Inflation Remains a Key Concern
Pakistan has witnessed a noticeable increase in inflation during the past two months. Headline inflation climbed from 7.3% in March to 10.9% in April and further to 11.7% in May. According to the MPC, the rise was largely driven by higher energy costs, increased transportation expenses, growing production costs, and an unexpected surge in wheat and flour prices.
Core inflation, which excludes volatile food and energy items, also moved upward, reaching 8.7% in May. This indicates that price pressures are becoming more widespread across the economy.
The central bank expects inflation to remain in double digits over the coming months before gradually easing as economic conditions stabilize and previous policy measures continue to take effect.
Economic Growth Shows Resilience
Despite inflationary challenges and external uncertainties, Pakistan’s economy has continued to grow. Preliminary estimates suggest that the country’s real GDP expanded by 3.7% during FY26.
The MPC noted a modest improvement in both consumer and business confidence, reflecting a degree of optimism about economic prospects. However, the committee also observed signs of slowing economic activity due to high prices, fiscal austerity measures, and lingering uncertainty in both domestic and international markets.
External Sector Remains Stable
The central bank highlighted improvements in Pakistan’s external position. SBP’s foreign exchange reserves increased to $17.2 billion as of June 5, 2026. This improvement was supported by the successful completion of reviews under the IMF programmed and continued foreign exchange purchases by the central bank.
The MPC believes that pressures on the external account remain manageable, helping maintain overall macroeconomic stability despite ongoing global challenges.
Global Risks Still Loom
The committee emphasized that the economic outlook remains vulnerable to several risks. The prolonged conflict in the Middle East continues to influence global energy markets and commodity prices. Although oil prices have eased somewhat following recent geopolitical developments, they remain above pre-conflict levels.
Other risks include potential adjustments in domestic energy tariffs, fiscal slippages, adverse weather conditions affecting food production, and volatility in international commodity markets.
Why the Rate Was Left Unchanged
By keeping the policy rate steady, the SBP appears to be balancing two competing objectives: controlling inflation while supporting economic growth. A higher interest rate could further dampen economic activity, while a lower rate could increase inflationary pressures.
The MPC concluded that the current rate is sufficiently restrictive to guide inflation downward over time while preserving economic stability. The committee also stressed the importance of continuing structural reforms and fiscal discipline to strengthen the economy’s resilience and support sustainable long-term growth.
Looking Ahead
The central bank remains committed to maintaining price stability and monitoring evolving economic conditions. While inflation is expected to stay elevated in the near term, policymakers remain confident that it will gradually move toward the target range over the medium term.
For businesses, investors, and households, the decision provides policy continuity, though concerns about rising living costs and economic uncertainty are likely to remain in focus over the months ahead.