ISLAMABAD: In its first monetary policy decision of 2026, the State Bank ofPakistan’s Monetary Policy Committee chose to keep the key policy rateunchanged at 10.5 percent, effective from January 27. Governor JameelAhmad, addressing a press conference in Karachi, highlighted that whileinflation has moderated in recent months, risks remain elevated due topotential base effects and external factors. The committee noted gradualimprovements in foreign exchange reserves, which have shown positivemomentum, alongside rising import volumes that signal recovering economicactivity. This hold preserves the accommodative stance adopted in prioradjustments while guarding against upside inflation surprises.
Foreign exchange reserves held by the State Bank have exhibited steadyenhancement, with SBP holdings crossing the 16 billion dollar mark inrecent weeks according to official data. Total liquid reserves, includingcommercial bank contributions, stand at levels providing greater importcover compared to previous periods. Governor Ahmad emphasized that thisbuildup stems from consistent remittance inflows, multilateral support, andprudent management. These developments have bolstered external accountstability, reducing immediate pressures on the rupee and enablingconfidence in sustaining current policy direction without aggressive easing.
Inflation dynamics remain a central consideration in the decision-makingprocess. The governor indicated that headline inflation could exceed 7percent in the ongoing fiscal year, potentially peaking before easingtoward the latter half. This outlook contrasts with earlier moderationtrends and incorporates risks from global commodity prices, domestic demandrecovery, and fiscal adjustments. The committee reviewed detailedprojections showing inflation averaging above target in the near term,necessitating vigilance to anchor expectations and prevent second-roundeffects from wage-price spirals or administered price changes.
Economic growth assessments formed another pillar of the policy review.Real GDP expansion is projected to strengthen gradually, supported byagricultural recovery, industrial rebound, and services sector performance.Imports have increased notably, reflecting higher raw material needs andconsumer demand revival after previous contractions. The policy ratemaintenance aims to facilitate credit availability for productive sectorswithout fueling excessive demand pressures. Analysts interpret this as ameasured approach to achieve sustainable growth of around 3.5 to 4 percentin the fiscal year, contingent on external stability and fiscal discipline.
The decision surprised markets that anticipated a 50 to 100 basis pointscut, based on declining inflation prints and reserve improvements. Equitymarkets had rallied in anticipation, reaching record highs ahead of theannouncement. The hold underscores the central bank’s priority on inflationcontrol over immediate stimulus, especially with external accountvulnerabilities still present despite recent gains. Borrowing costs forbusinesses and households remain elevated, potentially constraininginvestment but helping contain demand-pull inflation in an environment ofrecovering activity.
Broader implications include implications for fiscal-monetary coordination,where government borrowing patterns and expenditure management play crucialroles. The policy continuity supports debt servicing predictability whileencouraging fiscal consolidation to complement central bank efforts.Remittances continue as a vital buffer, providing stability amid globaluncertainties. The committee will monitor incoming data closely, withflexibility for adjustments in subsequent reviews if inflation trendsdeviate favorably or risks materialize.
Read Top Stories
This cautious monetary framework positions Pakistan to navigate ongoingchallenges while capitalizing on stabilization gains. The unchanged ratereinforces credibility in inflation targeting, essential for long-terminvestor confidence and sustainable development. As the economy transitionstoward higher growth, balancing price stability with expansion remainsparamount. Future policy directions will hinge on inflation trajectory,reserve accumulation pace, and external sector performance.
Inflation
ogimageimage-name
