Karachi (Web Desk): The State Bank of Pakistan (SBP) decided to keep its key policy rate steady at 11% during its monetary policy meeting on June 16, 2025.
This move reflects the central bank’s continued focus on anchoring inflation and preserving economic stability amid emerging macroeconomic challenges.
In May, headline inflation edged up to 3.5% year-on-year, a development that had already been anticipated by the central bank.
At the same time, core inflation registered a slight decline, indicating a softening in underlying price pressures.
Encouragingly, inflation expectations among both households and businesses have eased, contributing to a more stable outlook.
Looking ahead, inflation is expected to rise gradually but remain within the target range over the course of fiscal year 2025–26.
The Monetary Policy Committee observed that the domestic economy is gaining momentum, with early signs of improvement in activity.
The growth outlook for next year appears more favorable, buoyed by the delayed but ongoing effects of previous interest rate cuts.
Provisional estimates for real GDP growth in fiscal year 2024–25 stand at 2.7 percent, while the government aims for a stronger expansion of 4.2% in the upcoming year. However, the Committee acknowledged that the external sector remains vulnerable.
A notable increase in the trade deficit has been recorded, while financial inflows continue to lag.
There is concern that certain budget proposals for FY26—particularly those that may encourage higher import volumes—could exacerbate the trade imbalance.
Despite these concerns, the external account showed resilience, with the current account staying broadly balanced in April.
Additionally, the successful completion of the first review under the Extended Fund Facility provided a crucial boost, resulting in the release of approximately $1 billion.
This helped shore up the country’s foreign exchange reserves, which climbed to $11.7 billion by June 6.
Weighing all these developments, the Committee judged that maintaining the current policy rate was the most prudent course of action to support macroeconomic and price stability at this stage.