SBP keeps interest rate unchanged at 12pc

Karachi: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided to maintain the policy rate at 12% during its meeting on Monday, defying market expectations of a 50 to 100 basis points (bps) cut.

According to reports, the MPC convened to determine the policy rate for the next one and a half months but opted to keep it unchanged, citing inflationary trends and economic conditions.

The State Bank noted that inflation stood at 1.5% in February and is expected to decline further in the near term before gradually rising again.

For the current fiscal year, inflation is projected to remain between 5% to 7%, though risks persist due to food price volatility, energy adjustments, additional taxes, and global commodity price fluctuations.

The current account balance for FY 2024-25 is projected to post a surplus, while the GDP deficit is expected to be around 0.5%.

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The SBP’s foreign exchange reserves are anticipated to exceed $13 billion by June 2025, strengthening the country's external buffers amid global economic uncertainty.

Despite tight financial conditions, economic growth is expected to recover in the second half of FY25, as financial stability improves. The SBP maintained its economic growth forecast at 2.5% to 3.5% for the current fiscal year, expecting a pickup in economic activity moving forward.

It is worth mentioning that in its previous monetary policy review, the SBP had lowered the policy rate by 100bps, bringing it down to 12%.

The decision to pause further rate cuts suggests the central bank’s cautious stance amid evolving economic conditions, ensuring stability while monitoring inflationary and external sector developments.