SBP keeps policy rate unchanged at 11.5%

The State Bank of Pakistan's (SBP) Monetary Policy Committee (MPC) on Monday decided to keep the policy rate unchanged at 11.5%.

The committee noted that while global oil prices have eased following recent positive geopolitical developments, they remain higher than pre-conflict levels. It observed that the impact of the prolonged Middle East conflict is now becoming visible in economic indicators, with headline inflation rising to double digits in April and May and core inflation also edging higher.

The MPC said economic activity is showing signs of moderation amid elevated prices, austerity measures and prevailing economic uncertainty, while pressures on the external account remain manageable.

After assessing these developments and associated risks, the committee concluded that the macroeconomic outlook remains broadly unchanged from its previous meeting and that the current monetary policy stance is appropriate to guide inflation towards the target range of 5-7% over the medium term.

The committee highlighted several developments since its last meeting, including provisional estimates showing real GDP growth of 3.7% in FY26, a marginal recovery in consumer and business confidence, and an increase in the SBP's foreign exchange reserves to $17.2 billion as of June 5, 2026, following the successful completion of IMF reviews and ongoing foreign exchange purchases.

The MPC noted that proactive macroeconomic management, supported by forward-looking monetary policy and continued fiscal consolidation, has helped maintain economic stability despite the prolonged Middle East conflict. It reiterated its commitment to price stability and stressed the importance of accelerating structural reforms to strengthen economic resilience, improve productivity and support sustainable growth.

On inflation, the committee noted that headline inflation rose sharply from 7.3% in March to 10.9% in April and 11.7% in May, driven by higher energy prices, rising transportation and production costs, and an unexpected increase in wheat and wheat product prices. Core inflation also increased to 8.7% in May.

The MPC assessed that inflation is likely to remain in double digits over the next few months before gradually easing. However, it warned that the outlook remains subject to risks stemming from geopolitical developments, global commodity prices, adjustments in domestic energy tariffs, potential fiscal slippages and weather-related pressures on food prices.