SBP Holds Policy Rate at 10.5% in First MPC Meeting of 2026
The State Bank of Pakistan (SBP) has decided to keep its benchmark policy rate unchanged at 10.5% in the first Monetary Policy Committee (MPC) meeting of 2026.
SBP Governor Jameel Ahmad announced the decision during a press briefing on Monday. He said inflation may rise above 7% in some months during the second half of the current fiscal year. At the same time, he projected economic growth between 3.75% and 4.75% for the year.
This decision surprised many market participants. Most analysts had expected a rate cut because inflation had eased and foreign reserves had improved.
For background on Pakistan’s monetary policy framework, readers can visit the official State Bank of Pakistan
What the MPC Observed
Later, the central bank released a detailed MPC statement explaining its position.
The committee noted that headline inflation stood at 5.6% year-on-year in December 2025, which matched earlier forecasts. However, core inflation remained higher at around 7.4%.
Meanwhile, economic activity showed strong momentum. Large-scale manufacturing and domestic sectors continued to perform better than expected. As a result, the outlook for growth improved.
At the same time, the trade deficit widened because imports increased while exports declined. Still, higher remittances and stable global commodity prices helped keep the current account under control.
Because of these factors, the MPC chose to maintain the policy rate. The committee believes this level supports price stability while also encouraging sustainable growth.
Inflation and Growth Outlook
According to the MPC, inflation should stabilize within the 5% to 7% target range in fiscal years 2026 and 2027. However, inflation may cross this range temporarily in a few months.
The committee also warned about several risks. These include:
- Volatile global commodity prices
- Changes in domestic wheat prices
- Possible increases in energy tariffs
- Faster-than-expected growth in domestic demand
Despite these risks, the MPC said the current real policy rate remains positive enough to control inflation in the medium term.
Market Expectations Fell Short
At the previous meeting in December 2025, SBP had reduced the policy rate by 50 basis points to 10.5%.
Before this meeting, many analysts expected another cut.
For example, Arif Habib Limited predicted a 75 basis point reduction to bring rates below 10%. Similarly, Topline Securities reported that 80% of survey participants expected a cut.
Even a Reuters poll showed that most analysts expected at least a 50 basis point reduction.
However, SBP surprised the market by holding the rate steady.
Business Community Calls for Lower Rates
Business leaders had strongly pushed for cheaper borrowing.
Saqib Fayyaz Magoon of the FPCCI said high interest and energy costs were hurting industrial production and exports. He urged the government to reduce the policy rate to single digits as soon as possible.
Lower financing costs, he argued, could support investment and job creation.
Key Economic Developments
The MPC highlighted several important trends since the last meeting:
- GDP growth reached 3.7% in Q1-FY26, led by industry and agriculture
- Consumer and business confidence improved
- SBP foreign exchange reserves rose to $16.1 billion by mid-January
- FBR revenue growth slowed to 7.3%, below target
- The IMF slightly upgraded its global growth forecast for 2026
You can read more about Pakistan’s fiscal and tax environment on Muhasib & Co – Tax Law Explain.