Pakistan’s Central Bank Keeps Interest Rate Unchanged
The State Bank of Pakistan (SBP) decided to keep the interest rate unchanged at 10.5 percent, contrary to market expectations of a reduction. This decision was made by the Monetary Policy Committee (MPC) of the bank in its meeting on Monday.
Reasons Behind the Decision
The MPC observed that the headline inflation of 5.6 percent year on year in December 2025 was in line with its expectation, but core inflation has steadied around a relatively higher level of 7.4 percent in recent months. The committee also noted that the trade deficit has widened due to a substantial increase in imports and a decline in exports.
Economic Outlook
The MPC noted that the outlooks for inflation and the current account are broadly unchanged from its previous assessment, while the outlook for economic growth has improved significantly. The real GDP growth was provisionally reported at 3.7 percent year on year for Q1-FY26, mainly led by the industry and agriculture sectors. Both consumer and business confidence improved, whereas inflation expectations of these stakeholders eased.
Foreign Exchange Reserves
The SBP’s forex reserves surpassed the end-December target, reaching USD 16.1 billion as of January 16, mainly led by SBP’s ongoing interbank FX purchases. The governor of the SBP, Jamil Ahmed, said that the forex reserves would increase from the current USD 16.1 billion to USD 20.2 billion by the end of 2026.
Debt and Liability
The total external liability of Pakistan in the 2025-26 financial year was USD 25.7 billion, and the country was poised to fulfill its liability. USD 7 billion had already been rolled over, and another USD 5 billion would also be rolled over. The country’s external debt was USD 101 billion, which had not increased since June 2021.
Conclusion
In conclusion, the State Bank of Pakistan’s decision to keep the interest rate unchanged at 10.5 percent is aimed at ensuring price stability and supporting sustainable economic growth. The bank’s efforts to increase foreign exchange reserves and manage debt and liability are expected to have a positive impact on the country’s economy. With an improved outlook for economic growth, Pakistan is poised to achieve high growth on a sustainable basis, driven by productivity-enhancing structural reforms and a coordinated monetary and fiscal policy mix.
