SBP Holds Policy Rate at 11.5pc as Inflation Pressures Persist

The State Bank of Pakistan kept its benchmark policy rate unchanged at 11.5pc on Monday, choosing caution in the final monetary policy review of the outgoing fiscal year. The decision came at a sensitive moment for Pakistan’s economy, with inflation showing renewed pressure, oil markets reacting to regional developments and businesses looking for clearer signals on borrowing costs.

The Monetary Policy Committee maintained the rate after reviewing inflation trends, external account conditions, global commodity prices and domestic economic activity. The move suggests that the central bank is not yet ready to ease monetary conditions, even though market expectations for another rate increase had weakened in recent weeks.

Officials assessed that the broader economic outlook had not changed significantly since the previous review. The central bank’s policy stance remains aimed at steering inflation toward the medium-term target range of 5pc to 7pc, while avoiding a premature loosening that could weaken price stability or put fresh pressure on the rupee.

In its policy communication, the committee noted that inflation had returned to double digits in April and May, while core inflation also moved higher. It also pointed to signs of slower economic activity, linking the moderation to high prices, fiscal restraint and uncertainty that continues to influence investment and consumer behaviour.

The SBP also highlighted several developments supporting its decision. Pakistan’s GDP growth has been provisionally estimated at 3.7pc, consumer and business confidence has recovered slightly, and inflation expectations have eased to some extent. Foreign exchange reserves held by the central bank rose to $17.2 billion by June 5, supported by the completion of IMF programme reviews and continued official inflows.

The fiscal position also shaped the central bank’s reading of the economy. The primary balance surplus was estimated at 2.5pc of GDP, while the government is targeting a 2pc surplus for the next fiscal year. These targets matter because monetary policy and fiscal discipline together influence inflation, borrowing requirements and investor confidence.

The decision follows the April review, when the SBP raised the policy rate by 100 basis points to 11.5pc after conflict in the Gulf pushed oil prices higher and disturbed global supply chains. Since then, international oil prices have softened after the US-Iran peace breakthrough, but the central bank appears unwilling to treat that relief as permanent until the trend becomes more durable.

For households and businesses, the unchanged rate means borrowing costs will remain elevated for now. Manufacturers, small businesses, property buyers and consumers seeking credit are unlikely to see immediate relief, while savers and fixed-income investors may continue to benefit from higher returns. The decision also signals that the SBP wants to protect external stability before moving toward cheaper credit.

The wider impact on Pakistan will depend on how inflation, oil prices, the rupee and fiscal policy behave over the coming weeks. If price pressures ease and reserves remain stable, the central bank could gain room to consider future cuts. But any new fuel shock, currency pressure or budget-related inflation risk may keep policymakers cautious for longer.