Karachi: The State Bank of Pakistan (SBP) on Monday reduced the policy rate by 50 basis points, citing improving economic indicators and contained inflation, in a move aimed at reinforcing the ongoing recovery in economic activity.
Announcing the decision after a meeting of the Monetary Policy Committee (MPC), the central bank said headline inflation had remained within its target range of 5–7% during July–November FY26, providing limited space for calibrated monetary easing. The MPC, however, cautioned that core inflation remained relatively sticky and warranted continued vigilance to safeguard price stability.
The rate cut came as a surprise to financial markets, where most participants had expected the central bank to keep rates unchanged amid inflation risks and external sector pressures. The decision also diverged from the International Monetary Fund’s (IMF) recent emphasis on maintaining a tight monetary stance and ensuring positive real interest rates following the completion of reviews under its lending programme.
The SBP noted that economic activity had continued to gain traction, supported by broad-based improvements in key indicators. Large-scale manufacturing recorded 4.1% year-on-year growth in the first quarter of FY26, while higher sales of automobiles, cement and fertiliser, along with increased imports of machinery and intermediate goods, pointed to strengthening industrial momentum. The central bank said easing financial conditions would help consolidate these gains and encourage investment.
On the external front, the MPC said the current account deficit remained manageable during the first four months of FY26, supported by resilient workers’ remittances, although exports faced pressure due to a decline in food shipments. SBP’s foreign exchange reserves rose above $15.8 billion, aided by central bank purchases and inflows from the IMF.
Looking ahead, the MPC maintained its assessment that economic growth in FY26 would remain within its projected range, while cautioning that inflation could rise temporarily later in the year due to base effects and supply-side risks before easing over the medium term. The committee reiterated that future policy decisions would remain data-dependent to balance growth support with price stability.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
