Record $32.5bn forward external payments add pressure amid weak FDI and portfolio outflows
State Bank of Pakistan. Photo: File
The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Monday decided to keep the policy rate unchanged at 11%, marking the ‘fourth’ consecutive time the rate has been held steady.
The decision reflects a cautious approach as the central bank balances support for a fragile economic recovery with internal and external risks, despite calls from the business community to cut the rate to reduce borrowing costs and stimulate growth.
In a meeting conducted today, the cautious stance is aimed at maintaining long-term sustainability, noting that holding the rate at 11% considers multiple economic factors and ensures stability. This reflects the MPC’s careful balancing act between supporting growth and managing external pressures.
“The State Bank’s decision to maintain the policy rate at 11 percent is deeply disappointing,” said Korangi Association of Trade and Industry (KATI) President Muhammad Ikram Rajput. “This is the fourth consecutive MPC meeting where no relief has been provided to industries.”
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According to an Optimus Capital Management (OCM) report, the economy shows signs of moderate recovery such as cash in circulation rose 19% year-on-year, broad money (M2) increased 10%, private sector credit grew 9%, and imports rebounded 15% in the first quarter of FY26, based on Pakistan Bureau of Statistics (PBS) data.
However, overall demand remains subdued. Large-Scale Manufacturing (LSM) grew 4.4% year-on-year in the first two months of FY26, driven mainly by autos, motorcycles, and textiles, while consumer durables and white goods sales continue to lag.
External pressures are mounting, with 12-month forward external payments reaching a record $32.5 billion, up 8% year-on-year, amid weak foreign direct investment inflows and continued foreign portfolio divestments.
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Inflation dynamics appear mixed. Headline national CPI (NCPI) is expected to remain steady at 5.5% year-on-year in October 2025, despite a 1.2% month-on-month uptick due to higher food, housing, and gold prices. Core inflation is projected to rise slightly to 7.5% from 7.3% in September.
The MPC’s decision reflects the need to balance support for growth with external risks, maintain financial stability, and shield the economy from undue pressure. Keeping the rate unchanged is a prudent step amid ongoing vulnerabilities as the economy recovers.
Highlighting the decision, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Ikram Sheikh said it would further dampen business sentiment and hurt the overall economy. “Keeping the policy rate unchanged at 11 percent is an anti-growth move,” he added.
