The State Bank of Pakistan (SBP) on Monday decided to maintain the key policy rate at 10.5 percent, defying widespread market expectations of a further cut.
The Monetary Policy Committee (MPC) met to review current economic conditions and, in a move that surprised many analysts and investors, chose to hold the rate steady. The decision comes after the central bank had lowered the rate by 50 basis points in its December meeting, bringing it to 10.5 percent.
In the lead-up to Monday’s announcement, market sentiment strongly favoured another reduction. Analysts cited easing inflation, improved foreign exchange inflows, and a stabilising rupee as factors that could have supported a further cut. Some forecasts even suggested the policy rate could fall below 10 percent, with Arif Habib Limited expecting a 75-basis-point reduction to 9.75 percent.
Business leaders had also pressed for lower rates, arguing that high borrowing costs were weighing on industrial output and exports. Saqib Fayyaz Magoon, Chairman of the Businessmen Panel Progressive and Senior Vice President of the Federation of Pakistan Chambers of Commerce and Industry, urged the government to take advantage of improving inflation trends to reduce financing costs.
Recent data shows a mixed but generally supportive picture for easing. Headline inflation stood at 5.6 percent in December 2025, the rupee has held steady against the US dollar, petrol prices have dropped slightly, and remittances remain robust. Foreign exchange reserves have risen to $16.09 billion, while total liquid reserves are $21.26 billion.
Despite these favourable indicators, the MPC opted for caution, reflecting lingering uncertainties in the economic environment, including fluctuating international oil prices and a modest current account deficit.
The central bank’s decision to hold the policy rate signals a cautious approach, balancing the need to support economic growth while managing potential financial risks.
Read next: Gold prices in Pakistan reach record high
