ISLAMABAD, June 16 (Xinhua) -- The State Bank of Pakistan (SBP) has decided to keep its key policy rate unchanged at 11 percent, the central bank said Monday.
The decision follows a 100 basis point cut at the SBP's previous meeting on May 5, which brought the rate down from 12 percent. Overall, the central bank has reduced the policy rate by 1,100 basis points since June last year, following sustained disinflation.
"At its meeting today, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 11 percent," the SBP said, adding that this stance is appropriate to preserve macroeconomic and price stability in the face of external vulnerabilities and ongoing recovery.
The committee observed that headline inflation rose to 3.5 percent year-on-year in May, broadly in line with expectations, while core inflation eased slightly. Inflation is expected to inch up in the near term before stabilizing within the target range of 5 to 7 percent during fiscal year 2026.
The SBP said economic growth is gradually gaining traction, supported by the lagged impact of earlier monetary easing. Real GDP growth for fiscal 2025 is provisionally estimated at 2.7 percent, with the government targeting 4.2 percent for fiscal 2026, led by the industrial and services sectors.
Despite a widening trade deficit, the current account remained broadly balanced in April, bringing the cumulative surplus to 1.9 billion U.S. dollars for the July-April fiscal year 2025, largely due to strong workers' remittances.
Foreign exchange reserves rose to 11.7 billion dollars by June 6, following the disbursement of 1 billion dollars under the International Monetary Fund's Extended Fund Facility, and are projected to reach 14 billion dollars by end-June 2025.
The MPC flagged external risks stemming from subdued financial inflows, volatile global oil prices, and the potential impact of proposed fiscal 2026 budget measures, which may raise import demand and strain the external account.
On the fiscal front, the revised budget estimates show an improved primary surplus of 2.2 percent of GDP in fiscal 2025, compared to 0.9 percent a year earlier. A higher surplus of 2.4 percent is targeted for fiscal 2026.
The central bank emphasized that the real interest rate remains adequately positive to help stabilize inflation within the target range. It also stressed the importance of timely foreign inflows, fiscal discipline, and structural reforms -- particularly broadening the tax base and restructuring state-owned enterprises -- for sustaining macroeconomic stability.
The SBP noted that recent developments in global oil markets, influenced by Middle East tensions and easing global trade frictions, could have inflationary implications moving forward. ■
