• SBP says geopolitical tensions, volatile commodity prices, weather-related risks warrant prudent stance
• Expects ‘real GDP growth’ to be in 3.5-4.5pc range; inflation to remain ‘above target’ over next few months
KARACHI: The State Bank of Pakistan (SBP) kept the interest rate unchanged at 11.5 per cent for many reasons, including renewed hostilities in the Gulf and climate shocks, which have increased risks to the economy.
In a press conference on Monday, the SBP governor said the Monetary Policy Committee (MPC) unanimously decided to keep the policy rate unchanged after assessing the macroeconomic outlook.
“The committee assessed that the macroeconomic outlook has improved from its previous meeting, though it remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East,” said the governor. The SBP said the geopolitical tensions in the Middle East, volatile commodity prices, and weather-related risks continued to warrant a prudent monetary policy stance.
The SBP governor said the strong financial inflows and a contained current account deficit enabled SBP’s foreign exchange reserves to exceed the government’s June target, reaching $18.4 billion. He said the total external debt servicing requirements were projected to decline from $26.5bn in FY26 to $21.5bn in FY27, reducing the external financing burden. The SBP further expects approximately $7.3bn of FY27 external debt to be rolled over and another $3.5bn to be refinanced, substantially reducing the amount that will require fresh repayment.
Foreign exchange reserves were projected to reach $20.2bn by December 2026 and exceed $21bn by June 2027, while achieving more than three months of import cover within this fiscal year.
The SBP is expected to transfer approximately Rs1.4 trillion in profit to the government for FY26, subject to completion of the external audit and finalisation of the financial statements, he added.
The SBP projects the FY27 current account deficit to remain within 0-1 per cent of GDP, supported by remittances rising from $41.6bn to more than $44bn. The SBP’s forward liabilities currently stood at $900 million, and, through prudence reserve building, they were targeting these liabilities to be fully settled within FY27.
The central bank declined to comment on the proposed $10bn US financial cooperation package, saying that discussions remained at an early stage and further details should come from the Ministry of Finance after the negotiations.
Inflation, GDP growth
The recent increase in global commodity prices, higher input costs, and domestic food price pressure were likely to keep inflation above the target range over the next few months. Inflation is subsequently projected to ease gradually and stabilise near the upper bound of the 5-7 per cent target range by June 2027. This outlook is subject to multiple risks, including volatility in global energy prices, unanticipated adjustments in administered energy prices, unfavourable climate conditions and potential fiscal slippages.
The SBP also expected real GDP growth to be in the range of 3.5-4.5 per cent during FY27. However, the risks emanating from volatile global commodity prices due to the Middle East tensions and uncertain weather conditions, including the evolving El Niño, may weigh on growth prospects.
The SBP recalled that the foreign exchange reserves target had been achieved, Pakistan’s sovereign credit rating had been upgraded to “B” by Standard & Poor’s (S&P), inflation had eased for both consumers and businesses and the FBR had met its revised revenue target for FY26.
As anticipated, economic activity recorded some slowdown in Q4-FY26 in the wake of the Middle East conflict, surge in global energy prices, and austerity measures taken by the government, said the SBP. However, high-frequency indicators, including satellite imagery, automobile sales, cement dispatches, fertiliser offtake and business sentiments, suggested some recovery in economic activity in June, it added.
The current account posted a deficit of $139 million in FY26, close to the lower bound of the projected range for the year. The record workers’ remittances partly offset the widening trade deficit amidst the Middle East conflict. At the same time, the financial account recorded a surplus. The SBP governor said the current account deficit was expected to widen in line with the increase in economic activity, though it was assessed to remain in the range of 0-1 per cent of GDP in FY27.
The FBR achieved its revised tax collection target of Rs13 trillion by the end of FY26. The primary balance is estimated to have remained in surplus for the third consecutive year. Meanwhile, the overall fiscal deficit was estimated to have turned out significantly lower than the previous year.
The fiscal consolidation was expected to continue in FY27, with the primary surplus targeted at 2 per cent of GDP, whereas the overall fiscal deficit was targeted at 3.6 per cent of GDP, said the committee.
Published in Dawn, July 28th, 2026
