SBP Keeps Policy Rate at 11% Amid Challenges

Karachi, June 17, 2025 — The State Bank of Pakistan (SBP) on Monday held the benchmark policy rate steady at 11%, aligning with market expectations, as the Monetary Policy Committee (MPC) grappled with rising inflation, external vulnerabilities, regional tensions, and budgetary pressures, per its statement. May’s inflation hit 3.5% year-on-year, matching forecasts, with core inflation slightly down, though the MPC predicts a gradual rise to the 5–7% target range for FY26, justifying the status quo to keep real interest rates positive and anchor price stability.

Economic activity shows moderate gains from prior rate cuts, but downside risks loom, including a widening trade deficit, sluggish inflows, and FY26 budget measures that may boost imports. Global oil volatility and Middle East instability add pressure, alongside a balanced April current account and reserves at $11.7 billion post-IMF Extended Fund Facility review. Fiscal progress includes a 2.2% GDP primary surplus for FY25 (targeting 2.4% for FY26), yet domestic financing reliance and weak external inflows pose challenges.

GDP growth hit 2.7% in FY25, with a 4.2% FY26 target, driven by industry and services, though agriculture lags due to poor crop yields. Private credit grew 11%, reflecting improved sentiment, while broad money moderated to 12.6%. Inflation risks persist, with May’s rise from base effects in food prices, despite subdued energy costs, and potential volatility from commodity markets and domestic adjustments. Analysts back the hold, citing oil price rebounds and geopolitical tensions.

Web context reveals Pakistan’s external debt strain (e.g., $130 billion, web ID: 0), while X posts show mixed views—some welcome stability, others fear economic stagnation. Critically, the narrative of “prudent policy” may mask fragile foundations—web sources note import dependency, and X sentiment suggests distrust in sustainable growth, hinting at underlying risks.