SBP Keeps Rate at 11%, Eyes 3.25–4.25% FY26 Growth

KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) resolved to keep the key policy rate steady at 11% during its Monday meeting, deftly balancing the need to fuel accelerating economic growth against a recent inflationary uptick, according to an official statement.

The decision to pause follows a sharp rise in headline inflation to 5.6% in September, breaching the SBP’s 5–7% medium-term target. Yet, the MPC noted significant improvements in the macroeconomic landscape since its last meeting, with the impact of recent floods proving “less severe than feared” and economic activity gaining robust momentum.

The MPC attributed September’s inflation spike to anticipated flood-driven food price increases, elevated energy costs, and persistent core inflation at 7.3%. However, it highlighted that food price surges were milder than expected, with recent data showing decelerating prices for wheat, sugar, and perishables.

“The MPC considers the real policy rate sufficiently positive to anchor inflation within the target range over the medium term,” the statement affirmed, projecting inflation to temporarily exceed the upper bound in H2 FY2026 before stabilizing within 5–7% in FY2027.

The decision was bolstered by a strengthening economy. The Pakistan Bureau of Statistics revised FY25 real GDP growth to 3% from 2.7%. Large-scale manufacturing (LSM) surged 4.4% in July–August FY26, reversing last year’s contraction, driven by strong automobile, cement, and fertilizer sales. Kharif crop estimates held steady despite flood damage, with improved prospects for the Rabi season.

The MPC now forecasts FY26 real GDP growth in the upper half of its 3.25–4.25% range. Positive external developments enhance policy flexibility: the current account recorded a $110 million surplus in September, and SBP foreign exchange reserves reached $14.5 billion by October 17, projected to climb to $17.8 billion by June 2026, supported by contained deficits and IMF inflows.

Fiscal performance shone, with tax collection rising 12.5% year-on-year in Q1, and both overall and primary fiscal balances likely posting surpluses.

The MPC underscored the necessity of “coordinated, prudent monetary and fiscal policies” and structural reforms for sustainable growth. Despite the upbeat outlook, it flagged risks like volatile global commodity prices, export challenges, and potential domestic food supply disruptions.

By maintaining the 11% rate, the SBP aims to nurture economic recovery while vigilantly monitoring inflationary pressures, confident that the current policy stance will steer Pakistan toward a stable, growth-driven trajectory.