The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP), in its meeting held today, decided to maintain the policy rate at 11 percent, citing an improving macroeconomic outlook and stable inflation expectations.

According to the MPC statement, headline inflation rose to 5.6 percent in September 2025, while core inflation remained steady at 7.3 percent. The committee noted that despite the recent floods, their impact on the broader economy had been less severe than expected, with minimal supply disruptions and contained crop losses.

The SBP highlighted that economic activity has gained momentum, driven by growth in high-frequency indicators, reflecting stronger industrial performance and improved business confidence. Consequently, the macroeconomic outlook has strengthened compared to the previous assessment.

However, the MPC cautioned that uncertainties persist due to volatile global commodity prices, export challenges, and domestic food supply risks. Given these factors, the committee viewed the current policy stance as appropriate to maintain price stability and support sustainable growth.

Key Economic Developments

The SBP outlined several positive developments since its last policy meeting:

• GDP growth for FY25 was revised upward to 3.0% by the Pakistan Bureau of Statistics (PBS).
• Kharif crop production remained close to last year’s level despite floods.
• SBP’s foreign exchange reserves increased even after repaying a $500 million Eurobond, reaching $14.5 billion as of October 17, 2025.
• Pakistan reached a staff-level agreement with the IMF under the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) reviews.
• Inflation expectations among consumers and businesses eased, according to the latest SBP-IBA surveys.
• Global oil prices showed volatility, while other commodities displayed mixed trends.

Real Sector Performance

The SBP reported that large-scale manufacturing (LSM) expanded by 4.4% during July–August FY26, compared to a slight contraction in the same period last year. Growth in automobile, cement, fertilizer, and POL sales, along with rising private sector credit, has further improved industrial prospects.

Agriculture also showed positive signs, with better Kharif yields and an optimistic outlook for Rabi crops. These trends suggest that real GDP growth could reach the upper range of 3.25%–4.25% projected earlier.

External Sector Stability

Pakistan’s current account posted a surplus of $110 million in September 2025, bringing the Q1-FY26 deficit to $594 million, broadly in line with expectations. Exports showed moderate growth, while imports rose faster due to improving domestic activity.

Workers’ remittances remained strong, helping SBP reserves rise to $14.5 billion. The Bank projects reserves to reach $15.5 billion by December 2025 and around $17.8 billion by June 2026, assuming the realization of planned inflows. The current account deficit is expected to remain between 0–1% of GDP during FY26.

Fiscal Developments

During Q1-FY26, tax revenues grew 12.5% year-on-year, reaching Rs 2.9 trillion, though Rs 198 billion below target. Higher SBP profits and petroleum development levy (PDL) revenues supported non-tax income, resulting in expected fiscal and primary surpluses for the quarter.

The MPC emphasized the importance of fiscal discipline and prudent management of post-flood rehabilitation spending to ensure long-term sustainability.

Money, Credit, and Inflation Outlook

Private sector credit (PSC) expanded by 17%, reflecting improved financial conditions and rising demand across textile, telecom, chemical, and trade sectors. Meanwhile, broad money (M2) growth slowed to 12.3% due to lower domestic asset accumulation.

Inflation rose to 5.6% in September from 3.0% in August, largely driven by flood-related food price increases and higher energy costs. The SBP expects inflation to temporarily exceed its 5–7% target range in the coming months, but to return within range by FY27.

However, the outlook remains subject to risks from global commodity volatility, energy price adjustments, and food supply fluctuations.

Outlook and Policy Direction

Concluding the statement, the MPC reaffirmed that the real policy rate remains positive, adequate to bring inflation within the target range. The Committee stressed the need for continued coordination of monetary and fiscal policies, along with structural reforms, to ensure sustainable, inclusive, and stable economic growth in Pakistan.