Pakistan’s Economy Poised for Stability, Says Central Bank

The State Bank of Pakistan (SBP) has stated that enhanced stability in the national economy has placed the country in a more advantageous position to handle both external economic pressures and internal risks compared to two years prior.

In its inaugural biannual Monetary Policy Report (MPR), released on Wednesday, the SBP indicated that foreign investment is expected to rise, bolstered by the nation’s recent sovereign credit rating upgrade and the corresponding decrease in credit default swap (CDS) spreads.

Reflecting a significant decrease in the inflation rate, the SBP’s Monetary Policy Committee (MPC) lowered the policy rate by a cumulative 1,100 basis points to 11% in meetings held between June 2024 and May 2025. During subsequent meetings in June and July 2025, the rate was maintained, based on projections that inflation would primarily remain within the 5–7% range for the ongoing fiscal year 2025-26.

According to the MPR, this backdrop suggests that “economic activity is anticipated to pick up further, as the effects of the prior policy rate reductions continue to unfold.”

The central bank anticipates that the current real policy rate will be sufficiently positive to ensure inflation remains stable within the medium-term target range of 5–7%. Additionally, a wider trade deficit is anticipated, leading to a current account deficit of 0–1% of GDP in FY26, despite projections of continued growth in worker remittances.

The SBP announced that the MPR will be published twice annually, within two weeks following the monetary policy meetings held in January and July. The MPR will feature an in-depth analysis of macroeconomic conditions and outlook, an assessment of potential risks, and recent considerations that shaped monetary policy formulation.

The report indicates that the expected timely inflow of official financial funds, combined with consistent foreign exchange purchases by the SBP in the interbank market, will bolster the central bank’s reserves. These reserves are projected to increase to $15.5 billion by the close of December 2025 and reach approximately $17 billion by the end of June 2026.

While acknowledging the recent improvements in macroeconomic dynamics, the central bank also took into account potential domestic and global risks to the macroeconomic outlook, including fluctuations in international commodity prices, global trade uncertainties, and unforeseen adjustments to domestic administered energy prices.

The SBP emphasized the significance of “undertaking structural reforms to enhance the effectiveness of monetary policy and to foster higher, sustainable growth – (3.25-4.25% in FY26).”

The SBP noted that the MPC’s recent meetings were primarily focused on economic developments and the broader macroeconomic outlook.