SBP keeps policy rate unchanged at 11.5%

June 15, 2026 (MLN): The Monetary Policy Committee decided to keep the policy rate unchanged at 11.5% in its meeting held on June 15, 2026.

The Committee noted that global oil prices have eased following recent positive geopolitical developments, though they remain elevated compared to pre-conflict levels.

As anticipated in the previous meeting, the impact of the Middle East conflict is now visible in key economic indicators, with headline inflation rising to double digits in April and May and core inflation also edging up.

Economic activity is showing signs of moderation amid elevated prices, austerity measures, and prevailing uncertainty, while external account pressures remain moderate.

Having evaluated these developments, the MPC observed that the macroeconomic outlook is broadly unchanged from its last meeting and assessed that the current monetary policy stance remains appropriate to guide inflation toward the medium-term target range of 5-7%.

The Committee highlighted several key developments since its last meeting.

Real GDP growth for FY26 has been provisionally estimated by the PBS at 3.7%, up from 3.2% in FY25. Consumer and business confidence recovered marginally in the latest sentiment surveys, with inflation expectations easing somewhat.

The successful completion of IMF reviews under the EFF and RSF programmes, along with ongoing purchases, lifted SBP's FX reserves to $17.2 billion as of June 5, 2026. The government has estimated a primary balance surplus of 2.5% of GDP for FY26 and is targeting 2.0% of GDP for FY27.

The MPC also noted that the Middle East conflict has begun affecting macroeconomic conditions across economies, prompting a rising number of central banks to raise policy rates.

The MPC said proactive macroeconomic management, underpinned by forward-looking monetary policy and consistent fiscal consolidation, has helped sustain stability despite the prolonged conflict.

The Committee reiterated the need to accelerate structural reforms to strengthen the economy's resilience to supply shocks, enhance productivity, and support higher, more sustainable growth.

Real Sector

According to provisional PBS estimates, real GDP grew by 3.7% in FY26, up from 3.2% in FY25. The MPC noted this reflects the impact of the Middle East conflict and austerity measures, with pre-conflict growth momentum having been notably higher.

Growth was primarily driven by the services and industry sectors, with a meaningful contribution from agriculture.

Large-scale manufacturing posted growth of 6.5% during July-March FY26, though it is expected to moderate in Q4-FY26 based on recent high-frequency indicators.

The MPC expects spillover from the conflict to continue moderating industrial and services activity in the coming months, while subdued agriculture prospects amid challenging weather conditions for the Kharif crop may weigh on the FY27 growth outlook.

External Sector

The current account turned into a deficit of $0.3 billion in April, taking the cumulative deficit to $0.2 billion during July-April FY26, mainly due to a widening trade deficit amid a surge in energy imports that offset resilient workers' remittances.

Sizable remittances during May are likely to keep the FY26 current account deficit near the lower end of the earlier projected range.

Increased official inflows provided critical support in meeting external obligations, facilitating ongoing FX purchases and a buildup in reserves, which are projected to reach $18 billion by end-June 2026.

Despite some expected widening in the FY27 current account deficit, the MPC said reserve buildup is expected to continue through FX purchases and timely realisation of planned official inflows.

Fiscal Sector

Fiscal consolidation remained broadly on track during July-March FY26, primarily driven by expenditure restraint, even as revenue growth moderated compared to the same period last year.

The FBR has revised its FY26 target to around Rs13 trillion.

Despite the downward revision, the government expects to achieve a primary balance surplus of 2.5% of GDP for FY26 by containing expenditures, and is targeting 2.0% of GDP for FY27.

The MPC emphasized the importance of continued fiscal consolidation and reiterated the need for timely structural reforms, particularly broadening the tax base and reforming public sector enterprises.

Money and Credit

Broad money (M2) growth moderated to 14.3% y/y as of May 29, 2026, from 14.5% on April 10, entirely due to a deceleration in NDA growth reflecting lower net budgetary borrowing from the banking system.

Private sector credit grew by around 13%, with increases across working capital, fixed investment and consumer financing, while improvement in the external position accelerated NFA growth.

Currency in circulation growth rose, partly reflecting seasonal Eid-related cash withdrawals, pushing up the currency-to-deposit ratio.

Inflation

Headline inflation rose sharply from 7.3% in March to 10.9% in April and 11.7% in May, driven by base effects as well as the direct and indirect impact of the Middle East conflict on energy, transportation and production costs.

Core inflation rose to 8.2% in April and 8.7% in May, while an unanticipated surge in wheat and wheat product prices pushed up food inflation significantly over the last two months.

The MPC assessed that inflation may remain in double digits for the next few months before gradually easing, with the outlook subject to risks including geopolitical developments, the pass-through of global prices to domestic fuel, adjustments in power and gas tariffs, potential fiscal slippages, and weather-related food price uncertainty.

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