SBP Keeps Policy Rate at 11.5% Amid Rising Inflation and Middle‑East Risks
The State Bank of Pakistan’s Monetary Policy Committee left the policy rate unchanged at 11.5%, citing higher inflation risks from global commodity volatility, Middle‑East tensions and El Niño‑related food price pressures.
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Open on Business Recorder## Policy Decision
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) met on Monday at its Karachi headquarters and voted to keep the policy rate steady at 11.5%. Seven of the ten members, chaired by Governor Jameel Ahmad, supported maintaining the status quo for the third consecutive meeting. The last change was an increase of 100 basis points in April, when the rate moved from 10.5% to 11.5%.
## Inflation Outlook and Risks
The MPC acknowledged that risks to the inflation outlook have risen sharply. It still expects FY27 inflation to ease gradually toward the upper end of the 5‑7% target range by June 2027, but highlighted several key risk drivers: - Volatility in global commodity prices, especially energy, driven by the intensifying Middle‑East conflict. - Potential adjustments in electricity and gas tariffs. - Supply disruptions and higher food prices linked to worsening El Niño conditions.
Headline inflation rose to 11.1% year‑on‑year in August, up from 9.2% in July, while core inflation held at 8.7% after a recent dip in high‑speed diesel (HSD) prices.
## Economic Activity and Fiscal Position
Despite a slowdown in Q4‑FY26, high‑frequency indicators suggest a gradual pick‑up in activity, supported by higher petroleum‑oil sales, private credit growth, and stronger textile exports. Large‑scale manufacturing fell 3.5% in June, but FY26 growth reached 5%.
Fiscal consolidation exceeded the budget target, aided by robust tax collection and a higher‑than‑budgeted SBP profit transfer of Rs1.9 trillion to the government. Moody’s upgraded Pakistan’s sovereign rating to B3 with a stable outlook, and the country raised $3 billion via Eurobonds, lifting SBP reserves above $21 billion.
## Credit and Money Supply
Broad money growth slowed to 11.6% YoY as of 28 August, down from 13.2% at the previous MPC meeting, reflecting weaker contributions from both the National Development Assistance (NDA) and the National Financial Assistance (NFA) schemes. Private sector credit expanded 13.4%, driven by lower government borrowing and a revival in working‑capital, fixed‑investment and consumer financing across wholesale, retail, agriculture and sugar sectors.
## Outlook
The MPC reiterated its commitment to price stability, emphasizing the need for a prudent monetary‑fiscal mix, stronger buffers to absorb supply shocks, and timely structural reforms to boost productivity and sustain growth. Real GDP growth for FY27 is projected at 3.5‑4.5%.
## Market Implications
Holding the policy rate signals stability for banking margins but underscores persistent inflationary pressure from energy and food markets, which could weigh on consumer spending and corporate earnings, especially in transport and oil‑related sectors.