SBP holds interest rate at 11% amid signs of recovery and stable inflation
Listen to article
The State Bank of Pakistan (SBP) has decided to maintain the policy interest rate at 11% in its latest monetary policy statement, citing expectations of stabilised inflation and gradual economic recovery.
According to the SBP, inflation in May rose by 3.5%, and it is expected to align with the target range in FY26.
Despite a consistent rise in the trade deficit, the current account remained nearly balanced in April 2025.
The central bank also noted that proposed budgetary measures may further widen the trade gap.
Pakistan's real GDP growth for the current fiscal year has been estimated at 2.7%, while a target of 4.2% has been set for the next fiscal year.
Economic momentum improved in the second half, with GDP growth reaching 3.9%, driven by better performance in industry and services.
However, the agriculture sector underperformed due to a decline in key crop yields.
The SBP reported that foreign exchange reserves had risen to $11.7 billion.
The current account posted a $1.9 billion surplus over the past 10 months.
The central bank reaffirmed that the existing interest rate is appropriate to maintain inflation within the 5–7% range.
It expects continued economic growth next year, led by industrial and services sectors, despite limited inflationary impact from the latest federal budget.
Earlier, the central bank is expected to hold its policy rate, a Reuters' poll showed, as many analysts shifted their previous view of a cut in the wake of Israel's military strike on Iran, citing inflation risks from rising global commodity prices.
Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a "pre-emptive strike" to prevent Tehran from building an atomic weapon.
Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict.
The escalating hostilities triggered a sharp spike in oil prices – a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.
Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 11%. Two forecast a 100-basis-point cut and one predicted a 50bps cut.
On the other hand, the International Monetary Fund (IMF) has raised concerns over provision of Rs344 billion grants to various sectors without approval from the National Assembly.
Sources said the multilateral lender termed the grant for defence, Independent Power Producers (IPPs) and other sectors without the nod of parliament a violation of the govt-IMF agreement.
The federal government has additionally spent Rs344.66 billion during the current fiscal year in the shape of grants.
The government doled out Rs115 billion to IPPs, Rs30 billion to flood victims in Sindh, and Rs6 billion to the Federal Board of Revenue (FBR).
Similarly, it spent Rs14 billion on solarization, Rs23 billion on anti-terrorism initiatives, and Rs2 billion on technology upgrades.
Likewise, the government also released Rs3.7 billion for the Reko Diq project, Rs520 million for Special Investment Facilitation Council (SIFC) and Rs7 billion for parliamentarians' schemes.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
20 minutes ago
- Express Tribune
PM Shehbaz meets Iranian Ambassador, reaffirms Pakistan's support amid Israeli aggression
PM Shehbaz interacts with Ambassador of Iran to Pakistan H.E. Reza Amiri Moghadam at Pakistan International Maritime Expo and Conference on June 16. Photo: Prime Minister Shehbaz Sharif reiterated Pakistan's strong condemnation of recent Israeli aggression against Iran and expressed solidarity with the Iranian people and government amid heightened tensions in the region. The PM made the remarks during a meeting with Iranian Ambassador to Pakistan Reza Amiri Moghadam on the sidelines of the International Maritime Expo and Conference in Islamabad on Monday. 'The entire Pakistani nation's sympathies are with Iran over the martyrdom of innocent people,' he said. Islamabad: Prime Minister Muhammad Shehbaz Sharif interacts with the Ambassador of Iran to Pakistan H.E. Reza Amiri Moghadam at Pakistan International Maritime Expo and Conference on 16 June, 2025. — Government of Pakistan (@GovtofPakistan) June 16, 2025 He referred to his recent telephonic conversation with Iranian President Masoud Pezeshkian, during which Pakistan reaffirmed its support for Iran at the United Nations Security Council. Sharif stressed that Israel's attacks on Iran are a blatant violation of the UN Charter and international law. The premier further underscored that Pakistan would continue to stand by Iran in the face of Israeli aggression and maintain its commitment to supporting Iran's sovereignty on the global stage. Earlier, speaking at the soft launch of the 2nd Pakistan International Maritime Expo and Conference (PIMEC 2025), the PM outlined his vision for transforming Pakistan into a regional maritime powerhouse. "It is a great pleasure to see the Pakistan Navy, under the patronage of the Ministry of Maritime Affairs and in collaboration with key partners, organising the second edition of PIMEC," the PM said. Islamabad: Prime Minister Muhammad Shehbaz Sharif launches new logo of Pakistan International Maritime Expo and Conference. — Government of Pakistan (@GovtofPakistan) June 16, 2025 He praised the leadership of Naval Chief Admiral Naveed Ashraf and Maritime Affairs Minister Muhammad Junaid Anwar Chaudhry for their strategic foresight and commitment in advancing the event. In his address, Sharif emphasised the pivotal role of the Pakistan Navy in national defence and regional security, noting, "The Pakistan Navy has been a formidable force through all conflicts and remains a strong pillar of our national security." The PM also reaffirmed Pakistan's commitment to international peace and maritime law, citing the AMAN Exercise, which involved over 50 countries, as a symbol of Pakistan's cooperative maritime posture. With more than 1,000 kilometres of coastline and strategic positioning along vital sea lanes, Sharif stated that Pakistan was uniquely positioned to tap into the trillion-dollar global blue economy. "Even tapping a fraction of this economy could be a real game-changer," he said, adding, "Our coastal trade already brings in nearly $7 billion a year, and just imagine the potential if we fully develop this sector." The PM drew inspiration from global success stories, notably Japan, which, despite limited maritime resources, became a global leader in marine infrastructure and regional trade. "Let there be open competition," he said, stressing the importance of resilience, innovation, and strategic investment. Sharif concluded by highlighting the need to transform Pakistan's maritime sector into a driver of inclusive, sustainable economic growth. He called for greater synergy between the public and private sectors, saying, "The time has come to take the lead."
Express Tribune
6 hours ago
- Express Tribune
SBP holds interest rate at 11% amid signs of recovery and stable inflation
Listen to article The State Bank of Pakistan (SBP) has decided to maintain the policy interest rate at 11% in its latest monetary policy statement, citing expectations of stabilised inflation and gradual economic recovery. According to the SBP, inflation in May rose by 3.5%, and it is expected to align with the target range in FY26. Despite a consistent rise in the trade deficit, the current account remained nearly balanced in April 2025. The central bank also noted that proposed budgetary measures may further widen the trade gap. Pakistan's real GDP growth for the current fiscal year has been estimated at 2.7%, while a target of 4.2% has been set for the next fiscal year. Economic momentum improved in the second half, with GDP growth reaching 3.9%, driven by better performance in industry and services. However, the agriculture sector underperformed due to a decline in key crop yields. The SBP reported that foreign exchange reserves had risen to $11.7 billion. The current account posted a $1.9 billion surplus over the past 10 months. The central bank reaffirmed that the existing interest rate is appropriate to maintain inflation within the 5–7% range. It expects continued economic growth next year, led by industrial and services sectors, despite limited inflationary impact from the latest federal budget. Earlier, the central bank is expected to hold its policy rate, a Reuters' poll showed, as many analysts shifted their previous view of a cut in the wake of Israel's military strike on Iran, citing inflation risks from rising global commodity prices. Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a "pre-emptive strike" to prevent Tehran from building an atomic weapon. Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict. The escalating hostilities triggered a sharp spike in oil prices – a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies. Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 11%. Two forecast a 100-basis-point cut and one predicted a 50bps cut. On the other hand, the International Monetary Fund (IMF) has raised concerns over provision of Rs344 billion grants to various sectors without approval from the National Assembly. Sources said the multilateral lender termed the grant for defence, Independent Power Producers (IPPs) and other sectors without the nod of parliament a violation of the govt-IMF agreement. The federal government has additionally spent Rs344.66 billion during the current fiscal year in the shape of grants. The government doled out Rs115 billion to IPPs, Rs30 billion to flood victims in Sindh, and Rs6 billion to the Federal Board of Revenue (FBR). Similarly, it spent Rs14 billion on solarization, Rs23 billion on anti-terrorism initiatives, and Rs2 billion on technology upgrades. Likewise, the government also released Rs3.7 billion for the Reko Diq project, Rs520 million for Special Investment Facilitation Council (SIFC) and Rs7 billion for parliamentarians' schemes.
Business Recorder
7 hours ago
- Business Recorder
Status quo: MPC keeps policy rate unchanged at 11%
In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 11% on Monday. 'At its meeting today, the MPC decided to keep the policy rate unchanged at 11%,' the MPC said in a statement. The MPC noted that the increase in inflation in May to 3.5% year-on-year (y/y) was in line with its expectation, whereas core inflation declined marginally. 'Going forward, inflation is expected to trend up and stabilize in the target range during FY26,' it said. The MPC also assessed that economic growth is picking up gradually and is projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts. 'At the same time, the Committee noted some potential risks to the external sector amidst the sustained widening in the trade deficit and weak financial inflows. Moreover, some of the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports. In this regard, the Committee deemed today's decision appropriate to sustain the macroeconomic and price stability,' read the statement. Since its last meeting, the MPC noted the following key developments. 'First, the real GDP growth for FY25 is provisionally reported at 2.7%, and the government is targeting higher growth of 4.2% for next year. 'Second, despite a substantial widening in the trade deficit, the current account remained broadly balanced in April. 'Meanwhile, the completion of the first EFF review led to the disbursement of around $1 billion, which increased the SBP's FX reserves to $11.7 billion as of June 6. 'Third, the revised budget estimates indicate the primary balance surplus at 2.2% percent of GDP in FY25, up from 0.9% percent last year. For next year, the government is targeting a higher primary surplus of 2.4% of GDP. 'Lastly, global oil prices have rebounded sharply, reflecting the evolving geopolitical situation in the Middle East and some ease in US-China trade tensions,' read the statement. The MPC assessed that the real interest rate remains adequately positive to stabilise inflation within the target range of 5 – 7%. 'Furthermore, the Committee emphasised the timely realisation of planned foreign inflows, achievement of the targeted fiscal consolidation and the implementation of structural reforms as essential to maintain macroeconomic stability and achieve sustainable economic growth,' it noted. Inflation Expectations The MPC said that its initial assessment indicates the recent budgetary measures to have a limited impact on the inflation outlook. 'Nonetheless, some near-term volatility in inflation is expected, before it gradually inches up and stabilises within the 5 – 7% target range. 'This outlook, however, remains subject to multiple risks emanating from potential supply-chain disruptions from regional geopolitical conflicts, volatility in oil and other commodity prices, and the timing and magnitude of domestic energy price adjustments.'' Market expectations Market experts have widely expected the central bank to hold the key policy rate at 11%. 'While domestic macroeconomic indicators have improved significantly, particularly inflation and the external account, we believe the central bank is likely to adopt a wait-and-see approach in light of emerging global risks and domestic policy adjustments,' Arif Habib Limited (AHL), a brokerage house, said in its report. AHL, in its report, was of the view that while the domestic landscape supports an easing bias, recent geopolitical developments have raised the stakes. 'Escalating tensions in key oil-producing regions have triggered a sharp surge in global oil prices. Benchmark crude contracts, including Brent, WTI, and Arab Light, have risen close to 10-12% WoW, with daily spikes exceeding 6% as of the latest reading. 'For an oil-importing economy like Pakistan, this poses direct and indirect inflationary risks,' AHL noted. Analysts at Topline Securities also believed that the central bank's MPC would observe a status quo as international crude oil prices have rebounded to US$68-70/barrel amidst rising tensions in the Middle East region and an expected US-China deal. 'This warrants a cautious approach from policy makers, in our view, as oil prices' movement has remained a major driver of inflation in past. 'Some of the major notifications are also expected before the start of next fiscal year, i.e. gas price notification, and electricity price notification, among others,' Topline said in its report. Similarly, a Reuters poll found that the SBP is set to hold its key interest rate at 11% due to geopolitical tension, as analysts cite inflation risks from rising global commodity prices. 'There remains an upside risk of a rise in global commodity prices in light of geopolitical tensions, which could mark a return to inflationary pressures,' said Ahmad Mobeen, senior economist at S&P Global Market Intelligence. Previous MPC meeting In its last meeting, the MPC of the central bank cut the policy rate by 100 bps to 11%, contrary to market expectations. The committee, at that time, noted that inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and a continued downward trend in food inflation. 'Core inflation also declined in April, primarily reflecting favourable base effects amidst moderate demand conditions. 'Overall, the MPC assessed that the inflation outlook has improved further relative to the previous assessment,' read the statement. Since the last MPC meeting, several key economic developments have occurred. The rupee has depreciated by 0.6%, while petrol prices increased by 2.3%. Internationally, oil prices have significantly jumped by over 25% since the last MPC, hovering around $72 per barrel amid heightened regional tensions. Pakistan's headline inflation clocked in at 3.5% on a year-on-year basis in May 2025, a reading higher than that of April 2025, when it stood at 0.3%, showed Pakistan Bureau of Statistics (PBS) data. In addition, Pakistan's current account (C/A) posted a slight surplus of $12 million in April 2025, against a massive surplus of $1.2 billion (revised) last month, data released by the central bank showed. On a year-on-year (YoY) basis, the C/A decreased 96% against a surplus of $315 million (revised) recorded in the same month last year. Foreign exchange reserves held by the SBP increased by $167 million on a weekly basis, clocking in at $11.68 billion as of June 6. Total liquid foreign reserves held by the country stood at $16.88 billion. Net foreign reserves held by commercial banks stood at $5.12 billion.
