Key Points
- Inflation projected to stay within 5–7%, GDP growth 3.75–4.75% for FY26.
- External deficit contained by remittances and ICT services.
- Core inflation elevated at 7.4%, despite 5.6% headline inflation.
- Risks remain from commodity prices, energy adjustments, and rising domestic demand.
ISLAMABAD: The State Bank of Pakistan (SBP) on Monday maintained its benchmark policy interest rate at 10.5% during its first Monetary Policy Committee (MPC) meeting of 2026.
SBP Governor Jameel Ahmad announced the decision at a press conference, saying inflation in Pakistan could exceed 7% in some months during the second half of the current year.
He also projected that the country’s gross domestic product (GDP) would grow between 3.75% and 4.75% this year.
According to the Monetary Policy Statement issued by the State Bank, headline inflation stood at 5.6% in December 2025, while core inflation remained elevated at around 7.4%.
The external current account recorded a deficit of $244 million in December 2025, taking the cumulative deficit to $1.2 billion in the first half of FY2026.
Export performance was weighed down by a sharp decline in food exports, particularly rice, although high-value-added (HVA) textile exports remained resilient. Continued growth in workers’ remittances and ICT services, however, helped contain the overall current account deficit.
Against this backdrop, the MPC observed that inflation and the current account position were broadly unchanged, while the outlook for economic growth had improved. On this basis, the committee deemed it prudent to keep the policy rate unchanged at the current level to support price stability and sustainable economic growth.
The Monetary Policy Committee has decided to keep the policy rate unchanged at 10.5 percent in its meeting held on January 26, 2026.
For details: https://t.co/IyaTFO6mbh#SBPMonetaryPolicy pic.twitter.com/bWLBgkRliZ— SBP (@StateBank_Pak) January 26, 2026
On balance, the committee projected inflation to stabilise within the target range of 5–7% in FY26 and FY27, after temporarily breaching the upper bound for a few months during the current calendar year.
It cautioned that this outlook is subject to risks stemming from volatility in global commodity and domestic wheat prices, unanticipated adjustments in administered energy prices, and a sharper-than-expected pickup in domestic demand.
At its previous meeting on December 15, 2025, the MPC had lowered the policy rate by 50 basis points to 10.5%.
Market participants had widely anticipated further monetary easing at the latest meeting, citing easing inflation, improved external stability, and declining bond yields.
Arif Habib Limited (AHL) had projected a 75-basis-point cut, which would have brought the policy rate down to 9.75%, signalling a long-awaited return to single-digit levels. However, the central bank opted to keep the policy rate unchanged.
Similarly, Topline Securities had also expected a rate cut, noting that 80% of respondents in its recent survey were anticipating a reduction. The brokerage attributed the shift in market expectations to lower-than-expected inflation readings over the past two months, stronger-than-anticipated remittance inflows supporting external accounts, and a largely stable PKR/USD exchange rate.
