IMF points to tight policy, key to Pakistan’s stability ahead

December 12, 2025 (MLN):  The International Monetary Fund (IMF) has highlighted Pakistan’s “appropriately tight” monetary policy stance and proactive financial sector measures as key factors in maintaining macroeconomic stability amid recent flood-related challenges.

According to the IMF’s staff-level report for the second review, the State Bank of Pakistan (SBP) has successfully anchored inflation expectations by holding the policy rate at 11%, despite temporary supply shocks caused by floods.

The IMF noted that the SBP’s prudent and data-driven approach has kept inflation within the central bank’s target range of 5-7% over the medium term.

The SBP has shown remarkable resilience in managing inflation risks while supporting economic recovery, according to IMF. It commended the central bank’s efforts to strengthen its monetary policy framework, improve communication, and enhance transparency through semi-annual monetary policy reports and revised consumer inflation expectations surveys.

The report also emphasized the importance of continued vigilance in monitoring flood impacts on both inflation and the external position, suggesting that the SBP stand ready to act decisively to maintain well-anchored inflation expectations.

On the foreign exchange front, the IMF highlighted the SBP’s efforts to rebuild reserve buffers and deepen the interbank FX market. Measures such as the recent revision of Foreign Exchange Exposure Limits (FEEL) for banks were praised for providing greater flexibility in managing FX flows while maintaining prudent risk management.

The IMF also encouraged further efforts to enhance remittance channels and unwind certain capital flow measures once macroeconomic stability is restored.

The report also welcomed Pakistan’s efforts to develop capital markets, strengthen anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks, and regulate emerging sectors like virtual assets, highlighting the importance of balancing innovation with investor protection and financial transparency.

The authorities’ comprehensive approach, including enhancing reserve buffers, deepening the FX market, and advancing financial sector reforms, positions Pakistan to navigate short-term shocks while supporting long-term growth and stability, IMF noted.

As Pakistan faces ongoing economic challenges, the IMF stressed that maintaining a tight and data-dependent monetary policy, reinforcing financial regulation, and promoting a flexible exchange rate are essential to sustain macroeconomic stability and investor confidence.

Copyright Mettis Link News