KARACHI: The State Bank of Pakistan (SBP) on Monday opted to maintain its benchmark policy interest rate at 10.5% during the first Monetary Policy Committee (MPC) meeting of 2026, going against widespread market expectations of a rate cut.
The decision was announced by SBP Governor Jameel Ahmad during a post-meeting press conference.
The governor cautioned that inflation could rise above 7% in certain months during the second half of the current year.
In its previous MPC meeting on December 15, 2025, the central bank had unexpectedly lowered the policy rate by 50 basis points (bps) to 10.5%.
Ahead of Monday’s meeting, analysts had largely anticipated further monetary easing, citing declining inflation, improved external sector conditions, and falling bond yields.
Arif Habib Limited (AHL) had projected that the SBP might cut the policy rate by 75bps, potentially reducing it to 9.75% and “signalling a long-awaited return to single-digit territory”. However, the central bank chose to keep the rate unchanged.
Likewise, brokerage firm Topline Securities had also expected a rate cut. According to its recent survey, 80% of respondents were anticipating a reduction in the policy rate.
Topline attributed this market sentiment to lower-than-expected inflation figures over the past two months, stronger-than-forecast remittance inflows supporting the external account, and a largely stable PKR/USD exchange rate.
A Reuters poll also indicated expectations of a 50bps rate cut, driven by easing inflation, strengthening foreign exchange reserves, and a stabilising rupee, despite ongoing economic risks.
Out of 10 analysts surveyed, seven expected a 50bps cut, two anticipated a sharper 75bps reduction, while only one predicted that the SBP would keep rates unchanged.
Beyond analysts, business leaders had also called on the government to push interest rates into single-digit territory amid easing inflationary pressures.
In a statement, Saqib Fayyaz Magoon, Chairman of the Businessmen Panel Progressive (BMPP) and Senior Vice President of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), warned that elevated borrowing and energy costs were severely affecting industrial production and export competitiveness.
He urged the government to take advantage of the improving inflation outlook and provide immediate relief to businesses by lowering financing costs.
Saqib emphasised that the policy rate should be reduced to single digits without delay and demanded a cut of at least 100bps, calling it a long-standing request of the business community.
Previous MPC meeting
At its December 15 meeting, the MPC had reduced the policy rate by 50bps.
At the time, the committee noted that inflation, on average, remained within the 5–7% target range during July–November FY26, although core inflation continued to show relative stickiness.
“On balance, the inflation outlook remains broadly unchanged, mainly owing to the relatively benign global commodity prices and anchored inflation expectations, amidst a prudent monetary policy stance.
“The committee also assessed that economic activity continues to gain traction, based on robust improvement in key high-frequency indicators, including a higher-than-anticipated increase in large-scale manufacturing in Q1- FY26,” the MPC statement said.
Several important economic developments have taken place since the last MPC meeting.
The Pakistani rupee has appreciated by 0.16%, while petrol prices have declined by 4%.
On the global front, oil prices have climbed by more than 7% since the previous MPC, currently trading around $61 per barrel.
According to data from the Pakistan Bureau of Statistics (PBS), headline inflation stood at 5.6% year-on-year (YoY) in December 2025, aligning with the Ministry of Finance’s projected range of 5.5–6.5%.
Meanwhile, SBP data showed that Pakistan recorded a current account deficit of $244 million in December 2025.
This followed a surplus of $98 million in November 2025—revised from an earlier estimate of $100 million—and a surplus of $454 million in December 2024.
Foreign exchange reserves held by the SBP increased by $16 million on a weekly basis, reaching $16.09 billion as of January 16, 2026.
Overall liquid foreign reserves stood at $21.26 billion, while net foreign reserves held by commercial banks amounted to $5.17 billion.
