Karachi: The State Bank of Pakistan (SBP) has decided to maintain its policy rate at 11.0%, citing a worsening inflation outlook driven by adjustments in energy prices, increased economic activity, and a potential widening of the trade deficit. This decision was announced during the central bank's monetary policy statement, with further insights provided by the SBP Governor in a subsequent analyst briefing.
The SBP's cautious approach reflects uncertainties in the impact of trade tariffs and underscores the need for prudent monetary and fiscal policies to maintain macroeconomic stability. The central bank emphasized the government's commitment to providing remittance subsidies, anticipating inflows to exceed $40 billion by the fiscal year 2026.
Recent trends show a narrowing in the margins between interbank and open market dollar rates. The SBP expressed its readiness to collaborate with law enforcement agencies to combat illegal foreign exchange activities. Additionally, the central bank plans to intervene in the secondary market to manage liquidity, having already purchased $20 billion over the past three years without disrupting the foreign exchange market.
The government is preparing to meet external obligations amounting to $25.9 billion in fiscal year 2026, mirroring the previous year's commitments. Of this amount, $16 billion are rollovers, backed by commitments to the International Monetary Fund (IMF), while the remaining comprises $6 billion in interest and $4 billion in principal repayments.
The Monetary Policy Committee (MPC) projects a potential current account deficit of up to 1% of GDP in fiscal year 2026, driven by rising imports despite growth in remittances. Foreign exchange reserves are expected to increase to $15.9 billion by December 2025 and $17.5 billion by June 2026, buoyed by anticipated official inflows and potential credit rating upgrades.
Economic growth is projected to surpass last year's 2.7%, with forecasts ranging from 3.25% to 4.25%. The SBP Governor emphasized that policy decisions will remain data-driven, maintaining real positive interest rates and tight monetary policy as per IMF agreements.
The central bank has based its projections on oil prices at $70 per barrel for fiscal year 2026. Despite positive forecasts, the MPC highlighted the necessity of structural reforms to achieve sustainable higher growth rates.