In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has opted to maintain the benchmark policy rate at 11%, following its meeting held on Monday, June 17, 2025.
This decision reflects the Committee’s view that while inflation remains under control and economic growth is gradually improving, external risks and potential inflationary pressures justify a cautious stance.
Key Policy Highlights
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Policy Rate: Unchanged at 11%
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May Inflation (YoY): 3.5%, in line with expectations
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Core Inflation: Marginal decline
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Real GDP Growth (FY25): Provisionally at 2.7%
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FY26 GDP Target: 4.2%
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Current SBP FX Reserves: $11.7 billion (as of June 6)
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Current Account (April): $12 million surplus
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Primary Surplus (FY25): 2.2% of GDP
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FY26 Primary Surplus Target: 2.4% of GDP
Why the Policy Rate Was Held
The SBP noted that although headline inflation rose slightly in May, it remains well within a manageable range. The MPC also highlighted a gradual economic recovery, driven by the lagged effects of previous rate cuts.
However, emerging risks—both domestic and international—have tempered any immediate moves toward further monetary easing. These include:
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Rebounding global oil prices due to Middle East tensions, now up 25% since the last MPC meeting
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Widening trade deficit
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Uncertain foreign inflows
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Potential inflationary effects from FY26 budgetary measures such as increases in gas and electricity tariffs
The MPC stated:
“The Committee deemed today’s decision appropriate to sustain macroeconomic and price stability.”
Inflation and External Sector Outlook
Inflation is expected to exhibit near-term volatility, before gradually stabilizing within the SBP’s 5–7% target range during FY26. The forecast assumes no major global shocks and a continuation of fiscal discipline.
Yet, the MPC acknowledged multiple risks:
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Global commodity price volatility, especially crude oil
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Supply chain disruptions from geopolitical conflicts
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Domestic energy price adjustments
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Uncertainty in foreign capital flows and trade balance
Market Reactions and Analyst Views
The decision aligned with predictions from brokerage firms and economists.
Arif Habib Limited (AHL) noted:
“While macro indicators support easing, rising oil prices and geopolitical risks warrant a wait-and-see approach.”
Topline Securities echoed similar caution, citing:
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Crude oil around $68–$72/barrel
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Expected notifications for gas and electricity price hikes
A Reuters poll also showed consensus for a rate hold, given inflationary headwinds and the volatile global outlook.
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What Has Changed Since the Last MPC Meeting
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Policy rate was cut by 100 bps to 11% in the previous MPC
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Inflation rose to 3.5% in May, up from 0.3% in April
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Rupee depreciated by 0.6%
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Petrol prices increased by 2.3%
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Oil prices surged over 25% amid regional unrest
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FX reserves rose by $167 million, reaching $11.68 billion
These changes collectively influenced the MPC’s decision to pause any further monetary easing, despite an otherwise improving macroeconomic backdrop.
SBP’s Forward Guidance
The Committee emphasized several prerequisites for maintaining macroeconomic stability:
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Timely realisation of foreign inflows
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Continued fiscal consolidation
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Structural reforms in energy, taxation, and trade
The SBP remains committed to using its monetary policy toolkit to ensure inflation stays anchored, while providing enough room for sustainable growth.