FX.co ★ Pakistan Holds Policy Rate at 10.5%

In January, the State Bank of Pakistan opted to maintain its key policy rate at 10.5%, defying market expectations of a decrease to 10%, following two previous cuts in the preceding year. Headline inflation dipped to 5.6% in December, marking a three-month low and staying within the central bank's target range of 5–7%. The central bank anticipates inflation to remain within this target range through fiscal years 2026 and 2027. Economic activity showed strength with GDP for the first quarter of FY26 rising by 3.7% year-on-year, a significant increase from the 1.6% growth in the same quarter the previous year, primarily driven by the industrial and agricultural sectors. For the entire FY26, GDP growth is forecasted to be between 3.75% and 4.75%. On the external side, the current account deficit has expanded, but this has been somewhat offset by steady worker remittances and robust ICT exports. Foreign exchange reserves are on the rise and are projected to surpass $18 billion by the end of FY26. The Monetary Policy Committee highlighted that the current interest rate is conducive to maintaining price stability and fostering growth, while emphasizing the importance of alignment with fiscal policies and structural reforms.