SBP holds interest rate at 11% amid signs of recovery and stable inflation
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The State Bank of Pakistan (SBP) has decided to maintain the policy interest rate at 11% in its latest monetary policy statement, citing expectations of stabilised inflation and gradual economic recovery.
According to the SBP, inflation in May rose by 3.5%, and it is expected to align with the target range in FY26.
Despite a consistent rise in the trade deficit, the current account remained nearly balanced in April 2025.
The central bank also noted that proposed budgetary measures may further widen the trade gap.
Pakistan's real GDP growth for the current fiscal year has been estimated at 2.7%, while a target of 4.2% has been set for the next fiscal year.
Economic momentum improved in the second half, with GDP growth reaching 3.9%, driven by better performance in industry and services.
However, the agriculture sector underperformed due to a decline in key crop yields.
The SBP reported that foreign exchange reserves had risen to $11.7 billion.
The current account posted a $1.9 billion surplus over the past 10 months.
The central bank reaffirmed that the existing interest rate is appropriate to maintain inflation within the 5–7% range.
It expects continued economic growth next year, led by industrial and services sectors, despite limited inflationary impact from the latest federal budget.
Earlier, the central bank is expected to hold its policy rate, a Reuters' poll showed, as many analysts shifted their previous view of a cut in the wake of Israel's military strike on Iran, citing inflation risks from rising global commodity prices.
Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a "pre-emptive strike" to prevent Tehran from building an atomic weapon.
Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict.
The escalating hostilities triggered a sharp spike in oil prices – a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.
Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 11%. Two forecast a 100-basis-point cut and one predicted a 50bps cut.
On the other hand, the International Monetary Fund (IMF) has raised concerns over provision of Rs344 billion grants to various sectors without approval from the National Assembly.
Sources said the multilateral lender termed the grant for defence, Independent Power Producers (IPPs) and other sectors without the nod of parliament a violation of the govt-IMF agreement.
The federal government has additionally spent Rs344.66 billion during the current fiscal year in the shape of grants.
The government doled out Rs115 billion to IPPs, Rs30 billion to flood victims in Sindh, and Rs6 billion to the Federal Board of Revenue (FBR).
Similarly, it spent Rs14 billion on solarization, Rs23 billion on anti-terrorism initiatives, and Rs2 billion on technology upgrades.
Likewise, the government also released Rs3.7 billion for the Reko Diq project, Rs520 million for Special Investment Facilitation Council (SIFC) and Rs7 billion for parliamentarians' schemes.
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