The State Bank of Pakistan’s Monetary Policy Committee (MPC) has cut the policy rate by 50 bps, effective December 16, 2025, citing stable inflation and improving economic momentum. Headline inflation averaged within the 5–7% target range during July–November FY26, while core inflation remains sticky but manageable. Inflation expectations stay anchored, supported by benign global commodity prices and a prudent policy stance.
Economic activity continues to strengthen, with LSM growth of 4.1% y/y in Q1-FY26, improving consumer sentiment, and resilient private sector activity. SBP’s FX reserves rose above USD 15.8bn, aided by IMF inflows, providing external sector comfort despite export pressures. The current account deficit remains contained at 0–1% of GDP for FY26.
Fiscal balances posted surpluses in Q1-FY26, driven by SBP profit transfers, though slower tax collection highlights execution risks ahead. The MPC views the real policy rate as adequately positive and sees space to support growth while maintaining price stability. FY26 GDP growth is expected in the upper half of the 3.25–4.25% range, with inflation risks tilted to the upside later in the year due to base effects and energy price adjustments.
https://www.sbp.org.pk/m_policy/2025/MPS-DEC-2025-Eng.pdf
