State Bank keeps interest rate steady at 105 percent
KARACHI: The State Bank of Pakistan has decided to keep the benchmark interest rate unchanged at 10.5 percent for the next six weeks, according to the Monetary Policy Committee (MPC) which met on Monday.
Speaking at a press conference following the meeting, State Bank Governor Jameel Ahmad also announced a reduction in the cash reserve ratio for banks from 6 to 5 percent, aimed at improving liquidity in the financial system.
The MPC reported that inflation in December remained steady at 5.6 percent, while core inflation held at 7.4 percent. Economic growth outpaced expectations and is projected to reach 4.75 percent for the fiscal year 2026. Imports rose, contributing to a wider trade deficit, but the current account deficit remained under control.
Foreign exchange reserves currently stand at 16.1 billion dollars and are expected to exceed 18 billion by June. Private sector credit increased significantly, recording an additional 578 billion rupees. The Federal Board of Revenue faced a shortfall of 329 billion rupees against its revenue target.
The MPC expects inflation to remain within the target range of 5 to 7 percent for the current fiscal year. In December 2025, the current account deficit was 244 million dollars, while the cumulative deficit for the first half of the fiscal year reached 1.2 billion dollars. The rise in imports and decline in exports were the main contributors, while remittances and ICT exports helped keep the deficit under control. Overall, the current account deficit for FY2026 is projected to remain between zero and 1 percent of GDP.
The policy rate has remained in double digits over the last four years. Analysts suggest that keeping it at 10.5 percent sends a clear signal that the economy is on a path toward recovery and stability, which is expected to encourage business activity and investment.
GDP growth in the first quarter of the fiscal year was 3.7 percent, compared to 1.6 percent in the same period last year. Strong performance in auto sales, cement, POL products, fertilizers, and machinery imports has maintained economic momentum. Large-scale manufacturing grew by 6 percent from July to November, and favorable wheat crop prospects are expected to further support growth. On this basis, the MPC expects overall GDP growth for FY2026 to be in the range of 3.75 to 4.75 percent.
