Pakistan's central bank expected to keep interest rate unchanged at 11.5%

Pakistan's central bank is expected to leave its benchmark policy rate unchanged at 11.5% on Monday as policymakers balance improving domestic economic conditions against renewed geopolitical tensions and volatile global oil prices.

The State Bank of Pakistan's Monetary Policy Committee, chaired by Governor Jameel Ahmad, is scheduled to meet later Monday to review recent economic developments before announcing its latest monetary policy decision.

The central bank has kept the benchmark rate at 11.5% since April, when it raised borrowing costs by 100 basis points to counter mounting risks to Pakistan's macroeconomic outlook following escalating tensions in the Middle East. The committee reaffirmed the rate in June, citing a balanced inflation outlook alongside persistent external uncertainties.

Analysts expect policymakers to adopt a wait-and-see approach despite signs that Pakistan's economy continues to stabilize.

"The MPC is likely to keep the policy rate at 11.5% given renewed geopolitical tensions, rising volatility in global oil prices and lingering external risks," analysts said. They added that the central bank is expected to remain cautious until there is greater clarity on inflation and the external sector.

A survey by brokerage Topline Securities found that 97% of respondents expect the SBP to leave the policy rate unchanged, while only 3% anticipate a 100-basis-point cut.

Improving economic backdrop

Pakistan's key economic indicators have strengthened in recent months.

The country's current account recorded a USD 136 million deficit in fiscal year 2025-26, remaining within the SBP's target despite reversing from a USD 1.8 billion surplus a year earlier. The deficit largely reflected higher imports driven by stronger economic activity.

The central bank also met its end-June foreign exchange reserves target of USD 18 billion, despite significant external debt repayments.

Workers' remittances climbed to a record USD 41.6 billion during FY26, providing strong support to the external account and helping strengthen foreign exchange reserves.

Inflation accelerated to 11.1% year over year in June, although average inflation for FY26 was 7.05%, close to the SBP's medium-term target range of 5% to 7%. Governor Jameel Ahmad has said inflation is expected to moderate further in the coming months.

Cautious outlook

Analysts said the SBP's decision to raise interest rates in April underscored its preference for acting preemptively against inflationary pressures.

Although inflation is expected to remain in single digits for much of FY27, policymakers are likely to stay cautious because higher global energy prices and potential wheat imports to address domestic shortages could widen the current account deficit.

Analysts forecast average inflation of about 8.3% in FY27, assuming geopolitical tensions ease, energy prices stabilize and domestic food inflation remains contained through lower logistics costs and administrative measures.

Taken together, those factors are expected to keep the central bank on hold while it monitors domestic and global developments before considering any policy easing.