KARACHI: The State Bank of Pakistan (SBP) on Monday left its policy rate unchanged at 11 per cent for the fourth consecutive monetary review, a decision widely anticipated by market participants and analysts amid persistent inflationary pressures and global economic uncertainties.

In its monetary policy statement, the central bank said the decision was taken to maintain price stability as headline inflation, measured by the Consumer Price Index (CPI), rose to 5.6 per cent in September from 3pc in August. Meanwhile, core inflation, which excludes volatile food and energy prices, remained steady at 7.3pc, reflecting persistent underlying pressures.

The policy rate has remained unchanged since May despite a significant gap between interest rates and inflation. While trade and industry have continued to call for lower borrowing costs to stimulate growth, independent economists have also advocated a gradual cut to support the recovery. “Considering robust growth in high-frequency indicators, uncertainties from volatile global commodity prices and potential domestic food supply frictions, the decision was deemed appropriate to sustain price stability,” the Monetary Policy Committee (MPC) said.

The MPC noted that the September rise in inflation reflected higher food and energy prices, as well as sticky core inflation. However, it added that the recent surge in food prices appeared milder than anticipated due to slower price increases in major items such as wheat, sugar, and perishables.

SBP’s Monetary Policy Committee opts for caution to preserve price stability

Inflation is expected to exceed the upper bound of the 5-7pc target range for several months in the second half of FY26 before returning to the range in FY27. The committee warned that the outlook remained vulnerable to global commodity volatility, domestic energy price adjustments, and uncertainty over key food items.

The MPC considered the real policy rate adequately positive to keep inflation within target over the medium term. It also revised the growth outlook upward, projecting real GDP growth in the upper half of the earlier forecast range of 3.25-4.25pc.

The SBP said major Kharif crops performed better than expected, while improved input conditions and post-flood recovery would support Rabi yields. Large-scale manufacturing (LSM) grew by 4.4pc in July-August FY26, compared to a slight contraction a year

earlier. Sales of automobiles, cement, fertiliser and petroleum products, along with stronger private-sector credit demand and positive business sentiment, have improved the industrial outlook, the bank said.

External sector performance also showed improvement, with the current account posting a $110 million surplus in September, reducing the first-quarter deficit to $594m, broadly in line with expectations. Exports grew moderately while imports rose faster, widening the trade gap, though workers’ remittances remained resilient.

The current account deficit is expected to stay within 0-1pc of GDP in FY26, supported by planned external inflows. The SBP projected foreign exchange reserves to reach $15.5bn by December 2025 and $17.8bn by June 2026.

On the fiscal front, both overall and primary balances were expected to post surpluses in Q1FY26. The Federal Board of Revenue (FBR) collected Rs2.9 trillion, up 12.5pc year-on-year, but still Rs198bn below target.

It noted contained budgetary borrowing and a slowdown in credit to non-bank financial institutions, which created space for the private sector. Private-sector credit expanded 17pc, supported by recovering demand and improved financial conditions.

Published in Dawn, October 28th, 2025