SBP Governor unveils bi-annual MPR, cites fiscal discipline in cushioning shocks

August 11, 2026 (MLN): The State Bank of Pakistan (SBP) on Monday released its bi-annual Monetary Policy Report (MPR) for August 2026, projecting inflation to ease and stabilize near the upper bound of the target range towards end-FY27, economic growth to pick up to a range of 3.5-4.5%, and the current account deficit to remain within 0-1% of GDP, supporting FX reserves buildup towards the $20.20bn target by December 2026.

The report, released as part of the SBP's commitment to transparency around monetary policy decision-making and the Monetary Policy Committee's (MPC) reaction function, reviews macroeconomic developments and the outlook underpinning MPC decisions since the January 2026 meeting, according to a press release by SBP.

The Report noted that macroeconomic conditions during the review period were significantly influenced by evolving geopolitical developments, with the outbreak of the Middle East conflict in late February triggering a sharp rise in global energy prices, freight and insurance costs, and supply chain disruptions.

SBP Governor Jameel Ahmad while unveiling the monetary policy report highlighted how government’s continued fiscal discipline helped limit the impact of external developments on Pakistan’s economy.

The Governor unveiled the report in a video briefing shared by the SBP.

Despite this shock, FY26 macroeconomic outcomes turned out broadly in line with the projection ranges announced after the January 2026 MPC meeting.

The SBP highlighted that its prudent monetary tightening is helping contain second-round effects of the energy price shock while keeping inflation expectations anchored.

Meanwhile, the government maintained fiscal discipline by passing through global price increases to domestic prices in a timely manner and introducing targeted subsidies and austerity measures to conserve energy, moderating aggregate demand and keeping demand-side pressures muted.

SBP's FX reserves are projected to rise further by end-FY27, supported by continued FX purchases as the current account deficit stays contained.

The Report flagged multiple risks to the macroeconomic outlook, including evolving geopolitical developments in the Middle East that could push global energy and commodity prices beyond assumed levels, climate-related risks from evolving El Niño conditions and floods, and delays in structural reform implementation that could weaken exports, slow productivity gains and reduce the economy's capacity to sustain higher growth without stoking inflationary and external account pressures.

The MPR also features six box items covering key concepts related to inflation and monetary policy, including an update on the monetary policy transmission mechanism, central banks' reaction function to supply-side driven inflation, the use of different inflation measures globally and within the SBP, the growing size of open market operations (OMOs) and its implications for monetary policy, and the use of sentiment surveys to gauge stakeholder expectations.

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