Monetary Policy: SBP Keeps Policy Rate Steady at 10.5% Amid ‘Stable’ Economic Outlook

Karachi, January 26, 2026 – In a move that surprised some market analysts, the State Bank of Pakistan (SBP) has decided to hold its benchmark policy rate unchanged at 10.5% during the first Monetary Policy Committee (MPC) meeting of 2026. The decision comes as inflation remains under control, with global commodity prices staying benign and economic activity showing signs of recovery.

The MPC noted that the inflation outlook has remained broadly unchanged since the last review, supported by anchored inflation expectations and prudent fiscal management. Headline inflation stood at 5.6% year-on-year in December 2025, though it could rise above 7% in some months during the second half of the fiscal year due to seasonal factors. Core inflation, however, has been sticky, hovering within the 5-7% target range from July to November FY26.

On the external front, the current account recorded a deficit of $244 million in December 2025, reversing a $98 million surplus from the previous month. Despite this, foreign exchange reserves held by the SBP rose slightly by $16 million to $16.09 billion as of January 16, 2026, with total liquid reserves reaching $21.26 billion. The Pakistani rupee appreciated by 0.16% against the US dollar, while domestic petrol prices declined by 4%. Globally, oil prices have climbed over 7% since the last MPC meeting, now around $61 per barrel, adding a layer of caution to the outlook.

The central bank emphasized that the current stance supports sustainable growth while keeping inflation in check. However, risks persist, including persistent core inflation and potential external shocks. Analysts suggest this pause allows the SBP to assess the impact of recent economic improvements before considering any easing.
This decision aligns with the SBP’s goal of maintaining price stability amid gradual economic recovery, as high-frequency indicators point to strengthening activity.