The Monetary Policy Committee of the State Bank of Pakistan voted unanimously on 27 July 2026 to keep the policy rate unchanged at 11.5 percent. The decision took effect immediately and extends the rate set at the previous MPC meeting.
Unanimous decision as outlook improves but risks persist
The Committee assessed that the macroeconomic outlook has improved since its previous meeting, though it remains susceptible to heightened risks: particularly following the resurgence of conflict in the Middle East. The earlier de-escalation had led to a decline in global oil prices and a relative easing of supply-chain disruptions, which produced some improvement in recent economic indicators. However, the MPC judged that the current monetary policy stance remains appropriate to guide inflation toward the medium-term target range of 5: 7 percent.
Among the positive developments, the MPC noted that SBP foreign-exchange reserves surpassed the end-June 2026 target of $18 billion, Pakistan’s sovereign credit rating was upgraded to “B” by Standard & Poor’s, and the Federal Board of Revenue met its revised tax collection target of Rs13.0 trillion for FY26. Inflation expectations eased for both consumers and businesses in the latest sentiment surveys, though confidence indicators showed a mixed picture. On the external front, the IMF raised its global inflation forecast for both CY26 and CY27 amid rising global commodity prices.
Headline inflation moderates to 11.1 percent but stays elevated
Headline inflation eased to 11.1 percent year-on-year in June 2026, down from 11.7 percent in May. The decline was driven primarily by the pass-through of lower global energy prices to domestic consumers and a favourable electricity tariff adjustment. Core inflation also moderated, to 8.4 percent, but remains elevated. Food inflation rose in June following significant increases in wheat and allied products as well as key perishable items.
The MPC expects the recent rise in global commodity prices, higher input costs, and domestic food-price pressures to keep inflation above the target range over the next few months. Inflation is subsequently projected to ease gradually and stabilise near the upper bound of the 5: 7 percent target range by June 2027. The outlook is subject to risks including 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 percent for FY27
Economic activity slowed in the fourth quarter of FY26 owing 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 sentiment: point to some recovery in June. The agriculture outlook has improved: initial assessments indicate a significant increase in expected sugarcane output, likely to more than offset lower projected cotton production, with positive spillovers for the services sector.
The MPC expects real GDP growth in the range of 3.5: 4.5 percent during FY27, supported by budgetary incentives, continued import-tariff rationalisation, and a pickup in private-sector credit. Risks from volatile global commodity prices amid renewed Middle East tensions and uncertain weather conditions, including evolving El Niño effects, may weigh on growth prospects.
External buffers strengthen before debt repayments draw reserves lower
The current account posted a deficit of $139 million in FY26, close to the lower bound of the projected range. Record workers’ remittances partly offset a widening trade deficit. With substantial debt repayments in recent weeks, SBP foreign-exchange reserves stood at around $17.3 billion as of 17 July 2026. The current account deficit is expected to widen in line with the pickup in economic activity but remain in the range of 0: 1 percent of GDP in FY27. Workers’ remittances are projected to grow and continue financing a large part of the higher trade deficit. With planned official inflows and some improvement in private flows, SBP reserves are targeted to reach $20.20 billion by end-December 2026.
Fiscal consolidation on track with third consecutive primary surplus
The primary balance is estimated to have remained in surplus for the third consecutive year, while the overall fiscal deficit turned out significantly lower than the previous year. Fiscal consolidation is expected to continue in FY27: the primary surplus is targeted at 2.0 percent of GDP and the overall fiscal deficit at 3.6 percent of GDP. The MPC re-emphasised the need for fiscal reforms, particularly tax-base broadening and curtailing losses at public-sector enterprises.
Broad money (M2) growth moderated to 13.2 percent year-on-year as of 10 July, from 15.2 percent at the time of the last MPC meeting. Private-sector credit growth accelerated to 14.9 percent, broad-based across working capital, fixed investment, and consumer financing. Major borrowing sectors included textiles, telecommunications, and wholesale and retail trade.
The next MPC meeting has not yet been scheduled, though the Committee stated it will continue to closely monitor incoming data and evolving developments. What the evidence does not yet establish is the precise trajectory of administered energy-price adjustments: a risk the MPC itself identified as material to the inflation outlook: nor the timing of any future rate change.