State Bank of Pakistan Keeps Interest Rate Unchanged at 11%
The State Bank of Pakistan (SBP) has decided to keep the policy interest rate at 11%, as announced after its Monetary Policy Committee (MPC) meeting. This move was widely expected by experts and investors.
Why Did SBP Keep the Rate at 11%?
1. Rising Oil Prices Due to Global Conflict
- The ongoing tension between Israel and Iran has pushed global oil prices higher.
- Since Pakistan relies heavily on oil imports, the increased cost could lead to higher inflation and more pressure on foreign exchange reserves.
2. Inflation Still a Concern
- In May 2025, inflation in Pakistan rose to 3.5%, which is higher than the 2% target.
- The SBP expects inflation to stay between 5% and 7% during the next fiscal year.
3. Pressure on Imports and Budget
- The central bank warned that rising government spending, especially on defense, and increased import needs may worsen the country’s trade deficit and current account balance.
4. Maintaining a Realistic Rate
- The interest rate has been brought down from a peak of 22% in 2024 to the current 11%.
- This gives a good balance between controlling inflation and supporting the economy.
Summary at a Glance
| Key Area | Details |
|---|---|
| Interest Rate Decision | Held at 11% |
| Reason for Decision | Inflation risk, global tensions |
| Inflation (May 2025) | 3.5% |
| Inflation Forecast (FY26) | 5% to 7% |
| Previous Rate Peak | 22% in 2024 |
| Current Rate | 11% |
| GDP Growth FY24 | 2.7% |
| Growth Target FY26 | 4.2% |
| Expected Reserves | $14 billion by June-end |
| Next Review Date | August 2025 |
The SBP’s decision to hold the interest rate at 11% shows a cautious and balanced approach. It aims to support Pakistan’s fragile economy while keeping inflation in check. The next few months are critical, especially with rising oil prices, global uncertainty, and the new federal budget’s impact.
