Central Bank approves no change in policy interest rate contrary to expectations
On Monday, the State Bank of
Pakistan (SBP) decided to maintain its benchmark policy interest rate at
10.5% during its first Monetary Policy Committee (MPC) meeting of 2026. The
decision was announced by SBP Governor Jameel Ahmad at a press conference.
Governor Ahmad indicated that inflation in
Pakistan could surpass 7% in certain months during the second half of 2026. He
also projected the country’s Gross Domestic Product (GDP) to grow between 3.75%
and 4.75% this year.
At the MPC’s last meeting on December 15, 2025,
the central bank had cut the policy rate by 50 basis points (bps) to 10.5%.
Market experts had anticipated that SBP would further reduce the policy rate due to easing inflation, improved external stability, and falling bond yields. Arif Habib Limited (AHL) had forecasted a 75bps cut, potentially bringing the policy rate down to 9.75%, signaling a return to single-digit territory. However, the central bank decided to keep the rate unchanged.
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Similarly, Topline Securities, based on its
recent survey, also expected a rate cut. The survey revealed that 80% of
participants were anticipating a reduction. This shift in market sentiment was
attributed to lower-than-expected inflation in the past two months,
better-than-expected remittance flows supporting external accounts, and the
relatively stable PKR/USD exchange rate.
A Reuters poll had also expected a rate cut,
with analysts predicting a 50bps reduction, supported by easing inflation,
improved foreign exchange reserves, and a stabilizing rupee. Of the 10 analysts
surveyed, seven expected a 50bps rate cut, two forecasted a deeper 75bps
reduction, and one anticipated that SBP would hold rates steady.
Business leaders have also called for a
reduction in the policy rate. Saqib Fayyaz Magoon, Chairman of the Businessmen
Panel Progressive (BMPP) and Senior Vice President of the Federation of
Pakistan Chambers of Commerce & Industry (FPCCI), urged the government to
reduce the rate to single digits. He highlighted that high borrowing and energy
costs have significantly impacted industrial output and export competitiveness,
stressing that a cut of at least 100bps would provide much-needed relief to businesses.
Recap of
Previous MPC Meeting
In the last MPC meeting on December 15, 2025, the SBP reduced the policy rate
by 50bps, noting that inflation had remained within the target range of 5-7%
from July to November FY26, although core inflation remained persistent. The
SBP stated that inflation expectations remained anchored, aided by a prudent
monetary policy stance and relatively stable global commodity prices. The MPC
also noted that economic activity was picking up, with a stronger-than-expected
performance in large-scale manufacturing in Q1 FY26.
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Several key developments occurred since the
previous meeting:
·
The Pakistani rupee appreciated by 0.16%.
·
Petrol prices decreased by 4%.
·
International oil prices rose by more than 7%,
reaching around $61 per barrel.
·
Pakistan’s headline inflation in December 2025
stood at 5.6% year-on-year, in line with the Ministry of Finance’s estimate of
5.5-6.5%.
·
The country’s current account posted a deficit
of $244 million in December 2025, following a surplus of $98 million in
November 2025 and a surplus of $454 million in December 2024.
· SBP's foreign exchange reserves increased by $16 million, reaching $16.09 billion as of January 16, 2026, while total liquid foreign reserves stood at $21.26 billion. Net foreign reserves held by commercial banks were reported at $5.17 billion.
Source: Aaj News