The State Bank of Pakistan's Monetary Policy Committee voted unanimously on 27 July 2026 to hold the policy rate at 11.5%, the second consecutive meeting at which the rate has been left unchanged. The decision takes effect immediately and keeps the SBP's overnight reverse repo (ceiling) rate at 12.50% and the overnight repo (floor) rate at 10.50%.
Unanimous Decision Anchored to the 5: 7% Target
The MPC assessed that the current stance remains appropriate to guide inflation towards the medium-term target range of 5: 7%. While the Committee noted that the macroeconomic outlook had improved since its previous meeting, it warned that the outlook "remains susceptible to heightened risks, particularly following the resurgence of conflict in the Middle East." The earlier de-escalation had brought some relief through lower global oil prices and easing supply chain disruptions, but those gains are now at risk.
Inflation Moderates but Stays Elevated
Headline inflation eased to 11.1% year-on-year in June 2026, down from 11.7% in May, driven by the pass-through of lower global energy prices and a favourable electricity tariff adjustment. Core inflation also moderated, to 8.4%, but the MPC noted it "continues to remain elevated." Food inflation rose in June, pushed up by wheat and allied products as well as key perishables.
The MPC projects inflation will stay above the target range over the next few months before easing gradually to stabilise near the upper bound of 5: 7% by June 2027. Risks to this outlook include volatile global energy prices, unanticipated adjustments in administered energy prices, unfavourable climate conditions, and potential fiscal slippages.
GDP Growth Forecast at 3.5: 4.5% for FY27
The MPC expects real GDP growth of 3.5: 4.5% in FY27. High-frequency indicators: satellite imagery, automobile sales, cement dispatches, fertiliser offtake, and business sentiment: pointed to some recovery in June after a Q4-FY26 slowdown caused by the Middle East conflict, the surge in global energy prices, and government austerity measures. The agriculture outlook has improved, with a significant increase in expected sugarcane output likely to more than offset lower projected cotton production. Budgetary incentives, continued import tariff rationalisation, and a pickup in private sector credit are expected to provide further support. The MPC cautioned that volatile global commodity prices, the re-escalation of Middle East tensions, and uncertain weather: including evolving El Niño effects: could weigh on growth.
FX Reserves Targeted at $20.2 Billion by December 2026
Pakistan's current account posted a deficit of just $139 million in FY26, close to the lower bound of the projected range. Record workers' remittances partly offset a widening trade deficit. The financial account recorded a surplus, enabling the SBP to strengthen its foreign exchange reserves and significantly reduce forward liabilities. Reserves surpassed the end-June 2026 target of $18 billion but have since fallen to around $17.3 billion as of 17 July, following substantial debt repayments.
The current account deficit is expected to widen with the pickup in economic activity but remain within 0: 1% of GDP in FY27. The SBP has set a reserves target of $20.20 billion by end-December 2026, underpinned by planned official inflows and some expected improvement in private flows.
Sovereign Credit Rating Upgraded to B
Among the key developments noted by the MPC, Standard & Poor's upgraded Pakistan's sovereign credit rating to "B". The Committee also highlighted that the Federal Board of Revenue met its revised tax collection target of Rs13.0 trillion for FY26, the primary balance remained in surplus for the third consecutive year, and the overall fiscal deficit came in significantly lower than the previous year. For FY27, the primary surplus is targeted at 2.0% of GDP and the overall fiscal deficit at 3.6% of GDP.
What Comes Next
The MPC's next meeting is scheduled for 14 September 2026, with the monetary policy statement to be released the same day. The MPC minutes from the July meeting will be published by 21 August 2026, and the full Monetary Policy Report is due on 10 August 2026.
What the evidence does not yet establish is the trajectory of global oil prices and the intensity of the Middle East conflict in the weeks ahead: the two variables the MPC itself identified as the principal risks to its inflation and growth projections.