SBP Keeps Policy Rate Unchanged at 11%, Dashing Hopes for Rate Cut

KARACHI – July 30, 2025: The State Bank of Pakistan (SBP) has decided to maintain the policy rate at 11 percent, defying widespread market expectations of a rate cut. The announcement was made by SBP Governor Jameel Ahmad during a press conference in Karachi following the Monetary Policy Committee (MPC) meeting held earlier today.

“The MPC has decided to maintain the policy rate at 11%,” Governor Ahmad stated, emphasizing that the decision was driven by a reassessment of inflation risks and the broader macroeconomic outlook.

Market Disappointment

The central bank’s decision came as a surprise to analysts and investors, many of whom had anticipated a rate cut of 50 to 100 basis points, given the sharp decline in inflation and recent monetary easing.

Average headline inflation fell to 4.5% in the last fiscal year, slightly below the SBP’s target range of 5–7%. In June 2025, year-on-year inflation slowed to 3.2%, largely due to a decline in food prices, while core inflation also eased.

Despite these positive indicators, the MPC highlighted renewed inflationary pressures due to higher-than-expected adjustments in energy tariffs, particularly gas prices. “The inflation outlook has somewhat worsened,” the MPC noted, although it expects inflation to stabilize within the target range in the coming months.

Economic Activity Picking Up

The committee observed that economic activity is gaining momentum, partly due to the cumulative 1,000 basis point cut in the policy rate since June 2024. The SBP has reduced the policy rate in seven intervals over the past year, but has now paused for two consecutive meetings, including today’s.

The trade deficit is also expected to widen in FY26, attributed to a rebound in domestic demand and weaker global trade. Imports jumped 11.1% to $59.1 billion in FY25, compared to $53 billion in FY24, with a 16% increase in non-oil imports pointing to broader economic growth.

Positive External Indicators

The SBP also pointed to improvements in the external sector. Foreign exchange reserves have surpassed $14 billion, bolstered by increased financial inflows and a current account surplus. Additionally, Pakistan’s recent sovereign credit rating upgrade has improved investor sentiment, evidenced by falling Eurobond yields and narrowing credit default swap (CDS) spreads.

However, the committee acknowledged certain challenges, including a shortfall of Rs200 billion in Federal Board of Revenue (FBR) tax collection for FY25, volatile global oil prices, and uncertainty surrounding international trade tariffs.

Inflation Expectations Mixed

Consumer inflation expectations have edged up slightly, while business sentiment on inflation has declined, according to the SBP’s latest surveys.

“In light of these factors, the MPC judged that maintaining the real interest rate in positive territory is critical for anchoring inflation expectations and preserving macroeconomic stability,” the statement read.

Read more: SBP Keeps Key Interest Rate Unchanged at 11% Amid Economic Concerns

Structural Reforms Needed

The MPC concluded by reiterating the importance of sustained monetary and fiscal prudence and underscored the need for structural reforms to achieve long-term, sustainable economic growth.

Without such reforms, Governor Ahmad warned, Pakistan’s economy would struggle to sustain higher growth despite recent improvements.