🏦 State Bank Holds Policy Rate at 11% Again — Stability Over Growth

The State Bank of Pakistan (SBP) has once again decided to maintain the policy rate at 11 percent, marking the fourth consecutive time it has kept borrowing costs unchanged. The decision, announced after the latest meeting of the Monetary Policy Committee (MPC), has drawn both praise for its caution and criticism for its conservatism.

📊 The Decision and Its Rationale

According to the SBP, the decision reflects a “prudent and cautious approach” in light of Pakistan’s current macroeconomic environment.

Headline inflation eased to 5.6 percent in September, while core inflation stood at around 7 percent. On the surface, these figures seem to justify a rate cut. However, the SBP argues that several near-term risks—including energy tariff adjustments, global oil price volatility, and potential fiscal slippages—require maintaining a steady hand.

The Bank also highlighted that recent floods had a milder-than-expected impact on crops and inflation, and that the external sector is showing signs of improvement. Foreign exchange reserves are stabilizing, and the current account deficit remains contained.

⚖️ Caution or Overkill? The Critics Respond

While the SBP’s statement emphasized “macroeconomic stability,” economists and business leaders see the move differently. They argue that the central bank’s stance has become overly tight, particularly now that inflation has fallen well below double digits.

“With real interest rates now above 4–5 percent, businesses are suffocating,” said one academia-based analyst. “The SBP seems more concerned about pleasing the IMF and commercial banks than reviving domestic growth.”

Indeed, high policy rates have made private sector borrowing prohibitively expensive, stalling new investment and industrial expansion. Small and medium enterprises (SMEs) are among the hardest hit, while banks continue earning risk-free profits from government securities.

💱 The IMF Factor and the Rupee Dilemma

Behind the SBP’s conservative tone lies a bigger concern — the IMF program and the exchange rate. The Fund has long urged Pakistan to maintain “tight monetary and fiscal discipline” to avoid another balance-of-payments crisis.

Any sign of “premature loosening,” as the SBP itself phrased it, could undermine investor confidence and put pressure on the rupee. The central bank appears determined to avoid a repeat of 2022–23, when Pakistan’s currency lost nearly 60 percent of its value and reserves fell to dangerous lows.

In simpler terms, the SBP is saying:

“We’d rather keep growth subdued than risk another round of currency depreciation.”

📉 The Trade-Off: Stability at the Cost of Growth

The outcome of this policy stance is clear:

Policy Objective	Outcome
Inflation	Down to 5.6%
Exchange Rate	Stable
Economic Growth	Weak
Private Investment	Declining
IMF Confidence	Preserved

This reflects the classic IMF orthodoxy—stabilize first, grow later. The SBP seems to believe that maintaining discipline and credibility now will pave the way for sustainable growth later, once external risks recede.

🔮 What’s Next?

With inflation trending lower and reserves gradually improving, some analysts expect the SBP may start cutting rates in early 2026.However, much depends on fiscal performance, exchange rate trends, and the outcome of the ongoing IMF review.

Until then, Pakistan’s monetary policy remains what one analyst called:

“A balancing act between the IMF’s expectations and the economy’s desperation.”

✍️ Final Thoughts

The SBP’s latest move underscores a familiar dilemma for emerging economies: Should central banks focus on growth or guard against instability? For now, Pakistan’s policymakers have clearly chosen the latter.

Whether that caution translates into long-term stability—or prolonged stagnation—will become evident in the months ahead.