The State Bank of Pakistan (SBP) on Monday kept its policy rate unchanged at 11.5%, with seven of the 10 members of the Monetary Policy Committee (MPC) voting to maintain the status quo. The decision came as headline inflation rose to 11.1% in August from 9.2% in July, while core inflation stood at 8.7%. The SBP said inflation expectations among consumers and businesses also increased in September. The MPC said the intensification of the prolonged conflict in the Middle East had pushed already elevated global commodity prices higher, while supply chain disruptions persisted. It added that the worsening geopolitical environment had increased uncertainty surrounding the economic outlook. Despite these risks, the central bank said recent domestic macroeconomic data remained broadly in line with expectations, while external account pressures were contained by robust workers’ remittances and higher financial inflows. Pakistan’s foreign exchange reserves rose to $21.4 billion following the issuance of Eurobonds in September and significant foreign exchange purchases by the SBP. The central bank said resilient workers’ remittances and higher ICT exports were expected to contain the current account deficit within 0-1% of GDP in FY27. The SBP also noted that Pakistan had successfully raised $3 billion through Eurobonds, while the country’s sovereign credit rating was upgraded to B3 by Moody’s with a stable outlook. On economic activity, the MPC said growth had begun to recover after moderating in the fourth quarter of FY26. Recent high-frequency indicators, including petroleum sales, private-sector credit and textile exports, pointed towards a gradual pickup in activity in July. The central bank maintained its projection for real GDP growth in FY27 at 3.5-4.5%, citing improved prospects for the agriculture sector, including increased acreage for rice and sugarcane and encouraging initial reports on cotton arrivals. On inflation, the SBP said recent price pressures were largely driven by food inflation, particularly higher prices of wheat and allied products and perishable items. It added that elevated energy prices amid the Middle East conflict had also contributed to inflation. The central bank said the FY27 inflation outlook remained broadly unchanged, with inflation expected to gradually ease towards the upper bound of the 5-7% target range by June 2027. However, it warned that risks to the outlook had increased significantly due to global commodity price volatility, possible adjustments in electricity and gas tariffs, supply disruptions and unexpected movements in food prices. The MPC said the current monetary policy stance remained appropriate for guiding inflation towards the 5-7% target range over the medium term. It stressed the need for a prudent monetary and fiscal policy mix and further buildup of buffers to absorb supply shocks. The central bank also reported that broad money growth slowed to 11.6% year-on-year as of August 28, compared with 13.2% at the time of the previous MPC meeting, while private-sector credit grew 13.4% year-on-year.
SBP holds policy rate at 11.5% as Mideast tensions stoke inflation fears
