SBP Maintains 11% Rate Amid Economic Risks

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

Economic activity shows moderate recovery from prior rate cuts, but downside risks persist, including a widening trade deficit, sluggish inflows, and FY26 budget measures that may spike imports. Global oil volatility and Middle East instability heighten concerns, despite a near-balanced April current account, $11.7 billion reserves post-IMF Extended Fund Facility review, and GDP growth of 2.7% in FY25 (targeting 4.2% in FY26). Fiscal gains include a 2.2% GDP primary surplus for FY25 (aiming for 2.4% in FY26), though domestic financing reliance and weak external inflows signal management challenges.

The external account outlook is mixed, with remittances supporting it, but weak exports and rising imports may trigger a moderate deficit next year. Reserves are projected to hit $14 billion by June 2025 if inflows materialize. Real sector growth reached 3.9% in H2 FY25, led by industry and services, though agriculture lags due to poor crop yields, with weather risks threatening Kharif crops. Private credit grew 11%, reflecting improved sentiment, while broad money slowed to 12.6%, with reserve money rising from Eid demand and central bank operations.

Inflation risks loom, with May’s rise from food price base effects, despite subdued energy costs, and potential volatility from commodity markets, domestic adjustments, and regional unrest. Analysts expected the status quo, citing oil price rebounds and geopolitical tensions. The MPC stressed future moves hinge on foreign inflows, fiscal consolidation, and structural reforms for sustainable growth.

Web context flags Pakistan’s external debt load (e.g., $130 billion, web ID: 0), while X posts show divided opinions—some back stability, others warn of stagnation. Critically, the narrative of “cautious policy” may obscure structural weaknesses—web sources highlight import reliance, and X sentiment suggests distrust in long-term stability, hinting at underlying fragility.