SBP Holds Policy Rate at 11.5pc as Inflation Risks Rise

The State Bank of Pakistan has kept its key policy rate unchanged at 11.5 per cent, choosing caution as inflation pressures rise and the wider economy absorbs the impact of regional conflict. The decision was announced after the Monetary Policy Committee reviewed price trends, external balances and growth risks in Karachi.

The central bank’s move came largely in line with market expectations, as analysts had already predicted that the SBP would avoid a rate cut or hike at this stage. Policymakers appear to be balancing two pressures at once: the need to control inflation and the need to avoid further slowing economic activity.

According to the SBP’s assessment, the Middle East conflict has begun to show up in Pakistan’s economic indicators, particularly through elevated energy prices and higher production costs. The bank noted that economic activity is showing signs of moderation because of costly inputs, policy restraint and continuing uncertainty in domestic and global markets.

The Monetary Policy Committee said the broader macroeconomic outlook was not significantly different from its previous review, but risks had become more visible. It pointed to rising inflation, pressure from global commodity prices, possible adjustments in fuel and utility tariffs, fiscal discipline concerns and weather-related uncertainty affecting food supplies.

Inflation has become the central issue behind the policy pause. The SBP said headline inflation climbed from 7.3 per cent in March to 10.9 per cent in April and 11.7 per cent in May, while core inflation also moved upward. Food prices, especially wheat and wheat-based products, contributed strongly to the increase during the past two months.

The central bank warned that inflation may remain in double digits for the next few months before gradually easing. This means households are likely to continue facing pressure from food, fuel and transport costs, even as authorities attempt to maintain stability through tight monetary and fiscal management.

On growth, the SBP cited official estimates showing real GDP expansion of 3.7 per cent in FY26, higher than 3.2 per cent in FY25. However, it warned that the spillover effects of regional tensions, weak agricultural prospects and challenging weather conditions may weigh on industrial, services and farming activity in the coming fiscal year.

Pakistan’s external position remains under watch. The current account recorded a deficit in April, mainly because of a wider trade gap caused by higher energy imports, although remittances continued to provide support. The central bank said reserve accumulation is expected to continue through foreign exchange purchases and planned official inflows.

The decision matters for businesses, borrowers and consumers across Pakistan because the policy rate influences loan costs, investment decisions and market confidence. The next monetary policy review will depend heavily on inflation data, energy prices, foreign inflows, fiscal performance and whether regional tensions ease enough to reduce pressure on Pakistan’s fragile recovery.