KARACHI: Pakistan’s central bank announced on Wednesday it was keeping the interest rate unchanged at 11% despite a majority of the economists predicting a rate cut, with analysts linking the “cautious” approach to the government’s aim to ensure price stability amid a surge in energy prices.
The decision came as a surprise after the majority of Pakistan’s economists predicted a reduction of 100 basis points in the policy rate due to easing inflation in the country, which reached 3.2% in June.
The central bank kept its benchmark interest rate unchanged for a second consecutive time after slashing it by 1,100 basis points during the last year to keep inflation in check, which had surged to 38% in May 2023.
State Bank of Pakistan (SBP) Governor Jameel Ahmad said the decision was based on easing consumer prices as well as core inflation, which otherwise remains “static” but eased to 7.2% last month. However, an unexpected hike in energy prices had worsened the inflation outlook.
“The Monetary Policy Committee (MPC) met today and decided to maintain the current policy rate at 11%,” Ahmad said at a press briefing in Karachi after the MPC meeting.
State Bank of Pakistan Governor Jameel Ahmed speaks during a press conference at the SBP building in Karachi on July 30, 2025. (APP)
“The inflation outlook has somewhat worsened in the wake of higher-than-anticipated adjustment in energy prices, especially gas tariffs,” the central bank said in a separate statement.
Economist Khaqan Najeed, Pakistan’s former finance adviser, said the central bank had chosen a “path of continued caution and vigilance,” which aimed to consolidate stability gains before stimulating growth through monetary easing.
“The mention of ‘somewhat worsened’ inflation outlook due to energy tariffs was a key justification for not easing [the monetary policy],” he said.
Sana Tawfik, head of research at the brokerage research firm Arif Habib Ltd., agreed.
“For now, they will keep the interest rate at 11%, stabilize it and see the impact of its previous rate cuts as well as how recent floods and energy prices translate into the economic indicators,” she told Arab News.
Tawfik said Pakistan’s rising imports and resulting pressure on its external account had also influenced the SBP to keep the policy rate unchanged.
“Going forward, it appears that the state bank will remain cautious and will have a wait-and-see approach to take its decisions according to the global economic developments,” she said.
Prime Minister Shehbaz Sharif’s government is attempting to revive Pakistan’s debt-ridden economy with the help of a $7 billion loan from the International Monetary Fund (IMF).
Mushtaq Khan, an economist who is also the founder of a boutique advisory named “Doctored Papers,” described the SBP’s decision to keep the interest rate unchanged as a “smart move.”
“The external sector will be more vulnerable in FY26, so it’s a cautious step as needed,” he said.
Ahmad said this year Pakistan would need to repay $25.9 billion in foreign debt, of which about $16 billion were in bilateral loans that would be rolled over while the remaining $10 billion would have to be repaid.
This includes $1.8 billion in Eurobonds that are maturing this year.
“Going forward, we will see no difficulty in our debt repayments,” he said, citing increasing remittances that he said would cross the $40 billion mark this year.
