SBP Sees Economic Recovery Gaining Momentum, Forecasts Growth Up to 4.25% in FY26

August 13, 2025 (MLN): The State Bank of Pakistan (SBP) has projected a gradual but encouraging economic recovery in its Monetary Policy Report (MPR), released on Wednesday, highlighting a positive outlook for growth, inflation control, and foreign exchange reserves through FY26.

According to the report, the central bank expects real GDP growth to range between 3.25% and 4.25% in the upcoming fiscal year, signaling renewed momentum in economic activity as the effects of recent monetary easing continue to unfold.

The SBP has maintained the benchmark interest rate at 11% during its June and July Monetary Policy Committee (MPC) meetings. This decision, it says, is aimed at keeping the real interest rate sufficiently positive to help anchor inflation within its medium-term target range. The MPR also includes an inflation fan chart to illustrate this expected stability.

On the external front, while the trade deficit is expected to widen, the SBP forecasts a manageable current account deficit of 0 to 1% of GDP for FY26. This outlook factors in continued growth in workers’ remittances and projected financial inflows, which, along with the SBP’s interbank foreign exchange purchases, are expected to support a steady accumulation of reserves. The SBP projects foreign exchange reserves to rise to $15.5 billion by December 2025.

The report also discusses various external and domestic risks to this baseline outlook, including geopolitical uncertainties and climate-related concerns, but maintains a cautiously optimistic stance.

Beyond economic projections, the MPR includes five in-depth box items that explore both technical and topical issues. These cover the impact of the 1,100 basis point reduction in the policy rate, recent monetary policy trends in global central banks, and explanations of tools like fan charts used in forecasting. It also highlights the SBP’s increasing use of alternative data sources and machine learning to address gaps in labor market and agricultural statistics.

The MPR forms part of the SBP’s broader push for greater transparency in its monetary policy decisions and aims to improve communication with policymakers, financial institutions, and the general public.