SBP keeps policy rate at 11% for third consecutive time

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday decided to keep the interest rate unchanged at 11%, marking the “fourth” consecutive time the rate has been kept steady.

The decision reflects a cautious approach as the central bank balances support for a fragile economic recovery against domestic and external risks, despite calls from the business community to cut interest rates to lower borrowing costs and boost growth.

In a meeting held today, the cautious stance is aimed at maintaining long-term sustainability, noting that keeping the rate at 11% takes into account multiple economic factors and ensures stability. This reflects the MPC’s careful balancing act between supporting growth and managing external pressures.

“The State Bank’s decision to keep the policy rate at 11% is deeply disappointing,” said Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput. “This is the fourth consecutive MPC meeting where no relief has been provided to industries.”

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According to a report by Optimus Capital Management (OCM), the economy is showing signs of modest recovery, with cash in circulation growing 19% year-on-year, broad money (M2) growing 10%, private sector credit growing 9% and imports rebounding 15% in the first quarter of FY26, based on Pakistan data. Bureau of Statistics.

However, overall demand remains sluggish. Large Scale Manufacturing (LSM) grew 4.4% year-on-year in the first two months of 2016, led mainly by autos, motorcycles and textiles, while sales of consumer durables and white goods continue to lag.

External pressures are intensifying, with 12-month forward external payments hitting a record $32.5 billion, up 8% year-on-year, amid weak foreign direct investment inflows and continued foreign portfolio divestments.

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Inflation dynamics look mixed. The core national CPI (NCPI) is expected to hold steady at 5.5% year-on-year in October 2025, despite rising 1.2% month-on-month on higher food, housing and gold prices. Core inflation is forecast to rise slightly to 7.5% from 7.3% in September.

The MPC’s decision reflects the need to balance support for growth with external risks, maintain financial stability and protect the economy from undue stress. Keeping the interest rate unchanged is a prudent step amid continued vulnerabilities as the economy recovers.

Highlighting the decision, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh said it will further dampen the business climate and hurt the overall economy. “Keeping the interest rate unchanged at 11% is an anti-growth move,” he added.