State Bank of Pakistan’s Monetary Policy Decision Imminent

The Monetary Policy Committee (MPC) at the State Bank of Pakistan (SBP) is set to convene for its concluding session of the fiscal year. Financial analysts widely project that the central bank will likely opt to maintain the current monetary policy.

In their previous assembly on May 5, 2025, the MPC decided to lower the policy rate by 100 basis points (bps), bringing it down to 11%.

This adjustment marked the most favorable policy rate since March 2022, which stood at 9.75%. Since June, the central bank has progressively reduced the rate by a total of 1,100bps from its peak of 22%.

Market Projections

Financial market observers anticipate that the central bank will keep the key policy rate unchanged at 11%.

A report from Arif Habib Limited (AHL), a brokerage firm, stated, “Despite substantial improvements in domestic macroeconomic indicators, notably in inflation and the external account, we expect the central bank to maintain a cautious stance given emerging global uncertainties and ongoing domestic policy realignments.”

AHL’s analysis suggests that while domestic conditions favor a move toward easing, recent geopolitical events have heightened the risks.

“Rising tensions in key oil-producing regions have caused a sharp increase in global oil prices. Benchmark crude contracts, such as Brent, WTI, and Arab Light, have increased nearly 10-12% week-over-week, with daily increases surpassing 6% in the most recent assessments.”

AHL further noted, “This situation introduces direct and indirect inflationary risks for an oil-importing nation like Pakistan.”

Analysts at Topline Securities also foresee the MPC maintaining the status quo, noting that international crude oil prices have recovered to US$68-70 per barrel amid increased instability in the Middle East and a potential US-China agreement.

“This warrants a prudent strategy from policymakers, as fluctuations in oil prices have historically been a major determinant of inflation.”

Topline’s report also mentioned, “Several important notifications are anticipated before the start of the next fiscal year, including adjustments to gas and electricity prices.”

Similarly, a Reuters survey indicated that the SBP is expected to hold its primary interest rate at 11% due to geopolitical risks, with analysts pointing to potential inflationary pressures from rising global commodity prices.

Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, commented, “There remains a potential risk of increased global commodity prices due to geopolitical tensions, which could trigger a resurgence of inflationary pressures.”

Recap of the Prior MPC Meeting

In its previous session, the central bank’s MPC surprised market analysts by reducing the policy rate by 100 bps to 11%.

At that time, the committee acknowledged a significant drop in inflation during March and April, mainly attributed to lower regulated electricity prices and a sustained downward trend in food prices.

“Core inflation also decreased in April, primarily reflecting favourable base effects amidst moderate demand conditions.”

The statement further noted, “Overall, the MPC concluded that the inflation outlook has improved further since the previous evaluation.”

Recent Economic Developments

Several notable economic developments have unfolded since the last MPC meeting.

The rupee has seen a depreciation of 0.6%, while petrol prices have gone up by 2.3%.

Globally, oil prices have risen sharply by over 25% since the last MPC, currently around $72 per barrel due to increased regional unrest.

Data from the Pakistan Bureau of Statistics (PBS) revealed that Pakistan’s headline inflation stood at 3.5% year-on-year in May 2025, an increase from the 0.3% recorded in April 2025.

In addition, central bank data indicated that Pakistan’s current account (C/A) showed a small surplus of $12 million in April 2025, a steep drop from the $1.2 billion surplus seen the previous month. On a year-on-year basis, the C/A decreased by 96% compared to a surplus of $315 million in the same month last year.

The SBP’s foreign exchange reserves increased by $167 million on a weekly basis, reaching $11.68 billion as of June 6.

The country’s total liquid foreign reserves amounted to $16.88 billion. Net foreign reserves held by commercial banks were reported at $5.12 billion.