The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 11.5%, even as it assessed that the macroeconomic outlook has improved from its previous meeting. The committee noted that the outlook remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East, and judged that the current monetary policy stance remains appropriate to guide inflation towards the medium-term target range of 5-7%. The earlier de-escalation in regional tensions had led to a decline in global oil prices and a relative ease in supply chain disruptions, contributing to some improvement in recent economic indicators.
Headline and core inflation moderated in June, though both remained elevated. High-frequency indicators pointed to a pickup in economic activity, while external account pressures stayed moderate. Taking these developments and evolving risks into account, the MPC opted for the status quo.
The committee highlighted several positive developments. SBP's foreign exchange reserves surpassed the end-June 2026 target of $18 billion, largely due to continued FX purchases amid a small current account deficit in FY26 and the realisation of planned official inflows. Pakistan's sovereign credit rating was upgraded to "B" by Standard & Poor's (S&P).
With substantial debt repayments in recent weeks, reserves stood at around $17.3 billion as of July 17. Inflation expectations eased for both consumers and businesses in the latest sentiment surveys, although confidence indicators presented a mixed picture. The Federal Board of Revenue (FBR) met its revised tax revenue target for FY26.
Separately, the International Monetary Fund (IMF) raised its global inflation forecasts for both calendar years 2026 and 2027 in the latest World Economic Outlook amid higher global commodity prices. The MPC said economic activity slowed in the fourth quarter of FY26 as anticipated, due to the Middle East conflict, the surge in global energy prices and government austerity measures. However, high-frequency indicators, including satellite imagery, automobile sales, cement dispatches, fertiliser offtake and business sentiments, suggest some recovery in June.
The agriculture outlook has improved somewhat, with initial estimates pointing to a significant increase in expected sugarcane output, which is likel…
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