SBP Leaves Interest Rate Unchanged for 4th Meeting in a Row

The State Bank of Pakistan (SBP) announced on Monday that the Monetary Policy Committee has kept the interest rate unchanged at 11 percent in its meeting held on October 27, 2025, citing a pickup in economic activity and an improved macroeconomic outlook despite a recent surge in headline inflation. In its Monetary Policy Committee (MPC) statement, the central bank noted that inflation rose to 5.6% in September from 3% a month earlier, driven by flood-related food price pressures and higher energy costs. Core inflation, however, held steady at 7.3%. The MPC said the decision to maintain rates would help preserve price stability while allowing the impact of earlier rate cuts to unfold. The SBP said Pakistan’s economy showed stronger momentum than previously expected, with large-scale manufacturing expanding by 4.4% in July-August, and agriculture output largely spared from severe flood damage. Real GDP growth for fiscal year 2025 was revised up to 3% from 2.7%, and the central bank now expects growth to settle in the upper half of its earlier 3.25%–4.25% range. The external position also showed resilience. The current account recorded a $110 million surplus in September, bringing the deficit for the first quarter of FY26 to $594 million. Foreign exchange reserves rose to $14.5 billion as of mid-October and are projected to reach $17.8 billion by June 2026, aided by continued inflows and a contained current account gap. On the fiscal side, tax revenues rose 12.5% year-on-year to Rs. 2.9 trillion in the first quarter but missed the target by Rs. 198 billion. The central bank emphasized the need for fiscal discipline to meet balance targets and ensure sustainability amid rising rehabilitation spending after recent floods. The SBP highlighted easing inflation expectations and a stable external environment following Pakistan’s staff-level agreement with the International Monetary Fund on Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) reviews. Looking ahead, the central bank expects inflation to remain above its 5-7% target range for several months in the second half of FY26 before easing within r