Defying market expectations, the Monetary Policy Committee of the State Bank of Pakistan on Monday reduced the policy rate by 50 basis points to 10.5 percent, effective from December 16, 2025. Most analysts had expected the central bank to maintain the status quo after four consecutive meetings without any change. This decision marks a significant shift, taking the cumulative easing since the policy rate peaked at 22 percent to 1,150 basis points. The previous rate cut of 100 basis points was announced in May 2025.
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In its statement, the MPC highlighted that headline inflation remained within the target range of 5 to 7 percent during July to November FY26, although core inflation continues to show some stickiness. The committee noted that economic activity is gaining momentum, supported by strong high-frequency indicators and better-than-expected growth in large-scale manufacturing during the first quarter of FY26. Benign global commodity prices and anchored inflation expectations also supported the decision.
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The MPC further pointed to rising foreign exchange reserves, improved consumer confidence, fiscal surpluses in Q1-FY26, and continued IMF inflows as positive developments. However, it cautioned that global conditions remain challenging, particularly for exports. Overall, the committee assessed that the real policy rate remains sufficiently positive to stabilise inflation while supporting sustainable economic growth.
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