SBP Announces Monetary Policy with No Rate Cut, Business Community Disappointed

State Bank of Pakistan (SBP) announced monetary policy for the following two months with no change in interest rates, and maintained at 11%. Monetary Policy Committee (MPC) announced this policy, during its Karachi meeting and reported by Governor Jameel Ahmad during a press conference.

According to the MPC, the June 2025 inflation had decelerated to 3.2% year-on-year, which was principally influenced by the decreasing food prices, yet the core inflation had reduced slightly. But the Committee noted an upside risk to future inflation outlooks because of greater-than-expected rises in energy costs, gas tariffs among them. The inflation is expected to remain in the target of 5% to 7%, but can temporarily reach above the limit.

According to the SBP, all economic indicators kept in consideration before finalizing the rate decision. The real interest rate expected to remain positive. The central bank highlighted that economic activity is gaining momentum, while external sector improvements and remittance inflows continue to support the macroeconomic framework.

Key Highlights from the SBP Monetary Policy Today

• SBP Interest Rate: Maintained at 11%
• Inflation in June 2025: 3.2% y/y (down from 3.5% in May)
• Core Inflation: 7.6% y/y
• Inflation Outlook FY26: Projected at 5%–7%, with possible temporary spikes
• FX Reserves: Crossed $14 billion due to improved inflows
• Remittances FY25: $30 billion
• Current Account Surplus FY25: $2.1 billion (0.5% of GDP)
• Trade Deficit Outlook: Expected to widen in FY26
• Real GDP Growth Projection FY26: 3.25%–4.25% (up from 2.7% in FY25)
• Private Sector Credit Growth: 12.8% y/y
• FBR Revenue FY25: Rs11.7 trillion (Rs200 billion short of revised target)
• Projected FX Reserves by Dec 2025: $15.5 billion

The Karachi Chamber of Commerce and Industry (KCCI) and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) had recommended a rate cut of 5% to 6%. However, the decision to maintain the existing interest rate triggered disappointment among traders and industrialists, who were expecting monetary easing to support business activity.

The SBP reported a gradual recovery in high-frequency indicators such as automobile sales, fertilizer offtake, private credit, imports of machinery and intermediate goods, and purchasing managers’ index (PMI). Large Scale Manufacturing (LSM) also showed positive y/y growth in April and May after five months of contraction.

Agricultural output expected to improve in FY26 due to better water availability from recent rainfall, boosting the outlook for major crops. This may lead to a positive spillover effect on the services sector as well.

The current account surplus for June stood at $328 million, helping push FY25’s cumulative surplus to $2.1 billion. Workers’ remittances played a key role in offsetting the rising trade deficit. However, remittance growth may slow in FY26 due to base effects and adjustments in home remittance incentive schemes.

The government recorded improvement in fiscal performance in FY25 with both primary and overall fiscal balances exceeding targets. For FY26, a primary surplus of 2.4% of GDP is planned, with emphasis on revenue collection and expenditure control.

M2 (Broad Money) growth reached 14% y/y, while credit expansion remained broad-based across sectors. The SBP had to increase liquidity injections to align the interbank overnight repo rate with the policy rate.

Although inflation decelerated in June, risks remain due to possible increases in global commodity prices, further adjustments in energy tariffs, and weather-related disruptions. Gas and fuel prices, along with the phasing out of temporary electricity subsidies, expected to drive energy inflation in the coming months.