Karachi: The State Bank of Pakistan (SBP) announced on Thursday that it would maintain the policy rate at 11.0% in its latest monetary policy statement, aligning with market expectations. This decision comes amid rising inflation concerns and ongoing challenges to the country's external account.
In a briefing following the announcement, the SBP Governor noted that inflation rose to 3.5% in May 2025, a figure that was anticipated. The central bank forecasts inflation to trend upward but stabilize within a target range of 5-7% in the fiscal year 2026. Economic growth is gradually gaining traction and is expected to strengthen further next year, supported by the current monetary easing.
Despite positive domestic indicators, the SBP identified risks to the external account, chiefly due to a widening trade deficit and weaker financial inflows. Recent geopolitical developments in the Middle East and an easing of US-China trade tensions have caused oil prices to rise sharply, adding to the external pressures.
The government is set to meet external obligations amounting to $25.8 billion in FY25, with $10 billion earmarked for debt repayments. Of this, only $400 million in principal is due by June 2025. The central bank is projecting a similar level of external obligations for the following fiscal year.
Remittance inflows are expected to reach $38 billion during FY25, marking an increase of $7.1 billion from the previous year. The SBP anticipates that these figures will be sustained or improved in the next year. Strong remittances, coupled with export growth, are projected to keep the current account significantly in surplus.
The Monetary Policy Committee (MPC) estimates that, contingent on the realization of planned official inflows, SBP's foreign exchange reserves could rise to $14 billion by June 2025. Economic growth in FY25 is expected to exceed last year's 2.5%, with further improvement in FY26, although the government's target of 4.2% growth is seen as challenging.
The SBP Governor emphasized that the monetary policy will remain responsive to economic data, with no specific policy rate target set. Meanwhile, Open Market Operation levels have increased, driven by higher cash circulation ahead of Eid and timing gaps between debt repayments and external inflow receipts.
Additionally, the SBP plans to transfer PKR 2.4 trillion to the Government of Pakistan as dividends for FY26. Projections for inflation and trade balance are based on an assumed oil price of $75 per barrel.
The MPC stressed the importance of timely realization of planned foreign inflows, fiscal consolidation, and structural reforms to maintain macroeconomic stability and achieve sustainable growth.