ISLAMABAD: The State Bank of Pakistan (SBP) on Monday reduced its policy rate by 50 basis points to 10.5 per cent, effective from December 16, citing contained inflation and improving economic activity while acknowledging persistent external and domestic risks.
In a statement issued after its meeting, the SBP’s Monetary Policy Committee (MPC) said inflation had remained within the medium-term target range of 5–7 per cent on average during July–November FY26, although core inflation continued to show relative stickiness. The committee noted that benign global commodity prices and anchored inflation expectations had helped stabilise the outlook, allowing limited room for monetary easing.
“On balance, the inflation outlook remains broadly unchanged,” the MPC said, adding that the policy rate cut was aimed at supporting sustainable economic growth while maintaining price stability.
The committee observed that economic activity had gained momentum, supported by improved high-frequency indicators, including a stronger-than-expected rise in large-scale manufacturing during the first quarter of FY26. It also cited increased sales of automobiles, fertiliser and cement, along with higher imports of machinery and intermediate goods, as signals of a positive industrial outlook.
However, the MPC cautioned that the global environment remained challenging, particularly for exports, which could weigh on the broader macroeconomic outlook. Export performance has been under pressure, mainly due to a sharp decline in food exports, especially rice.
On the external front, the MPC said the current account recorded a cumulative deficit of $0.7 billion during July–October FY26, broadly in line with expectations. While imports continued to grow with economic recovery and workers’ remittances remained resilient, financing inflows stayed modest. Despite this, SBP’s foreign exchange reserves surpassed the December 2025 target of $15.5 billion, driven by continued central bank purchases, and are projected to rise to $17.8bn by June 2026, assuming planned inflows materialise.
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The committee also highlighted improvements in fiscal performance during the first quarter of FY26, noting that both overall and primary balances posted surpluses, largely due to a sizeable transfer of SBP profits. At the same time, it warned that tax collection growth had slowed significantly, requiring acceleration to meet annual targets.
📢 Monetary Policy Committee has decided to decrease the policy rate by 50 basis points to 10.5 percent w.e.f. December 16, 2025.#SBPMonetaryPolicy
— SBP (@StateBank_Pak) December 15, 2025
While inflation is expected to rise temporarily above the target range toward the end of the fiscal year, the MPC said it should ease again in FY27. It underscored the importance of fiscal discipline and structural reforms, particularly broadening the tax base and privatising loss-making state-owned enterprises.
Prime Minister Shehbaz Sharif welcomed the rate cut, describing it as a positive signal for businesses and the public. Market analysts also termed the move supportive for growth, while noting that risks related to exports, global prices and fiscal pressures would need careful monitoring in the coming months.
