Policy Rate Unchanged 11.5% as Inflation Outlook Improves
Pakistan’s central bank kept the policy rate 11.5 unchanged. This decision reflects improving economic signals and stable financial conditions. However, officials remain cautious about inflation risks in the coming months.
Fiscal and External Position Strengthens
The government showed better fiscal discipline this year. The Federal Board of Revenue met its revised tax target of Rs13 trillion. As a result, the country maintained a primary surplus for the third year. In addition, the overall fiscal deficit dropped compared to last year. Authorities aim to continue this trend in FY27. Therefore, they target a 2% primary surplus and a 3.6% fiscal deficit. Meanwhile, foreign exchange reserves are expected to improve. Officials project reserves to reach $20.20 billion by December 2026. This growth will come from official inflows and rising private investments.
Money Supply and Credit Trends
Broad money growth slowed to 13.2% year-on-year by July 10. Earlier, it stood at 15.2%. This decline reflects lower contributions from domestic and foreign assets.
However, private sector credit grew faster and reached 14.9%. Easier financial conditions supported this rise. Businesses increased borrowing for working capital and investments. For example, key sectors like textiles, telecom, and retail saw strong demand. Consumer financing also improved. In addition, bank deposits grew steadily, which reduced the currency to deposit ratio.
Inflation Shows Mixed Signals
Headline inflation eased to 11.1% in June 2026. Previously, it stood at 11.7%. Lower global energy prices helped reduce costs for consumers. Electricity tariff adjustments also supported this decline. Core inflation dropped to 8.4%, but it still remains high. On the other hand, food inflation increased due to higher wheat and perishable prices. Looking ahead, inflation may stay above target in the short term. Rising global commodity prices and local food costs may create pressure. However, experts expect gradual easing over time. By June 2027, inflation could stabilize near the upper limit of the 5–7% range. Therefore, policymakers chose to keep the policy rate 11.5 unchanged for now. This approach supports growth while managing risks carefully.
