Pakistan's central bank left its benchmark policy rate unchanged at 11.5% on Monday, with S&P Global Market Intelligence saying the decision reflects improving macroeconomic stability but remains appropriate as inflation stays above target and geopolitical and climate-related risks continue to cloud the outlook.
The State Bank of Pakistan's Monetary Policy Committee (MPC) kept the key interest rate unchanged, citing easing near-term external pressures and signs of recovery in economic activity. However, it warned that renewed conflict in the Middle East, volatile global commodity prices and weather-related risks continue to pose upside risks to inflation.
Ahmad Mobeen, principal economist at S&P Global Market Intelligence, said the decision reflects a more stable macroeconomic environment but underscores the need for continued policy discipline.
"State Bank of Pakistan's decision to keep the policy rate unchanged comes amid a more stable macroeconomic backdrop, supported by easing near-term external pressures and a recovery in activity indicators and sentiment surveys," Mobeen said.
"However, the policy stance is likely to remain cautious going forward, as inflation remains above the central bank's target range, while risks from renewed Middle East tensions, volatile commodity prices and, especially, the prospect of a severe El Niño event continue to weigh on the outlook."
He said Pakistan's external position is gradually strengthening, although debt repayment obligations and reliance on official financing and rollover arrangements remain significant challenges.
"External buffers are improving as well, but repayment pressures and reliance on official inflows and rollovers mean policy discipline will remain critical," Mobeen said.
S&P Global Market Intelligence expects Pakistan's economy to grow 3.5% in fiscal year 2027 but warned that commodity price volatility and a potential severe El Niño event remain the key downside risks to growth.
The firm forecasts Pakistan's foreign exchange reserves will rise to USD 19.5 billion by the end of December 2026, supported by workers' remittances and planned official inflows.
It projects the country's current account deficit at 0.7% of gross domestic product in calendar year 2026, widening slightly to 0.9% of GDP in 2027, while noting that external financing needs will remain elevated despite expected rollover arrangements.
The SBP's latest policy decision comes as Pakistan seeks to support economic recovery while containing inflation and safeguarding external stability under its ongoing economic reform program.
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