The State Bank of Pakistan (SBP) announced on Tuesday that it will keep the policy interest rate steady at 11%, citing steady inflation and signs of economic improvement.
SBP Governor Jameel Ahmed said inflation currently stands at 7.2%, with a slight rise observed in May and June.
The average inflation rate for the last fiscal year was 4.5%. Food inflation and core inflation both saw reductions last year, although core inflation is expected to rise again in the coming months.
Exports have increased modestly, growing by 4%, while remittances rose by $8 billion last fiscal year, supporting the country’s external account surplus for the first time in 14 years.
Imports grew by 11%, with non-oil imports rising 16%, driven by stronger economic activity.
Despite a current account surplus in 2023, the SBP projects a deficit of up to 1% of GDP for the current fiscal year, mainly influenced by rising imports. Remittances are expected to exceed $40 billion this year.
Economic growth is forecast between 3.25% and 4.25% for the ongoing fiscal year, with improvements expected in the agricultural sector due to favourable rainfall and water availability.
The industrial and services sectors are also expected to perform well.
Pakistan’s external debt repayments remain substantial, with $25.9 billion due this fiscal year. However, debt servicing costs have decreased due to lower interest rates on new loans and longer repayment terms.
International credit rating agencies have upgraded Pakistan’s credit rating, reflecting improved debt sustainability.
Governor Ahmed said the SBP and the government successfully managed external payments last year, with reserves increasing by $5 billion despite $10 billion in debt repayments.
The central bank has actively intervened in the interbank market to stabilise the exchange rate, and the banking sector has fully met import and foreign exchange demands.
Pakistan’s foreign exchange reserves currently exceed $14 billion, surpassing the country’s debt obligations for this year.
The reserves are projected to reach $15.5 billion by December, with the central bank setting a target of $17.5 billion for June 2026.
The issuance of Eurobonds could further boost these reserves.
The SBP regulates and monitors two legal foreign exchange markets: the interbank market and exchange companies.
However, an illegal currency market also operates in the country, which falls outside the SBP’s jurisdiction and is controlled by law enforcement agencies.
The SBP said it actively supervises the legal markets and intervenes promptly when necessary. Any information regarding illegal market activity is promptly shared with security agencies for action.
The government will take strict measures to control gold smuggling at the national level.
He further stated that policy actions related to remittances will be implemented to support and regulate the flow of funds from abroad. The government will continue its supportive schemes aimed at facilitating remittances.
Additionally, law enforcement agencies have been tasked with preventing illegal activities.
