Islamabad, Jan 26 (PTI) Pakistan’s central bank decided on Monday to keep the interest rate unchanged at 10.5 per cent against the market expectation of reduction.

According to a statement issued by the State Bank of Pakistan (SBP), the Monetary Policy Committee (MPC) of the bank “decided to keep the policy rate unchanged at 10.5 per cent in its meeting today (Monday)”.

The rate was not reduced despite market expectations that the bank would cut down the policy rate by 0.5 to 1 per cent to facilitate the businesses.

Instead it said that the MPC observed that the headline inflation of 5.6 per cent year on year in December 2025 was in line with its expectation, but core inflation has steadied around a relatively higher level of 7.4 per cent in recent months.

The committee also noted that the trade deficit has widened in the wake of a substantial increase in imports, particularly import volumes, and a decline in exports.

The MPC noted that the outlooks for inflation and the current account are broadly unchanged from its previous assessment, while the outlook for economic growth has improved significantly.

“Based on this, the committee deemed it prudent to hold the policy rate unchanged at the current level to ensure price stability and support sustainable economic growth,” it said.

The committee also noted the real GDP growth was provisionally reported at 3.7 per cent year on year for Q1-FY26, mainly led by the industry and agriculture sectors. It said that both consumer and business confidence improved, whereas inflation expectations of these stakeholders eased.

It said the SBP’s forex reserves surpassed the end-December target, reaching USD 16.1 billion as of January 16, mainly led by SBP’s ongoing interbank FX purchases.

It also said that tax revenue growth decelerated to 7.3 per cent in December, falling short of the target.

According to the statement, the MPC assessed the real policy rate to be adequately positive to stabilise inflation within the target range of 5-7 per cent over the medium term, while emphasising the need for coordinated and prudent monetary and fiscal policy mix – as well as productivity-enhancing structural reforms – to increase exports and achieve high growth on a sustainable basis.

Governor SBP Jamil Ahmed, addressing a press conference, said that GDP was expected to grow between 3.75 to 4.75 per cent during the ongoing financial year set to end on June 30, 2026.

He also sounded optimistic that the forex reserves would increase from the current USD 16.1 billion to USD 20.2 billion by the end of 2026, adding that along with the reserves held by the private banks, the net forex amount would be more than USD 25 billion.

He also said that the total external liability of Pakistan in the 2025-26 financial year was USD 25.7 billion, and the country was poised to fulfil its liability.

Giving details, he said that USD 7 billion had already been rolled over and another USD 5 billion would also be rolled over. He said that USD 5.7 billion debt had already been paid during the current fiscal year while the remaining would be paid as the country had enough reserves.

Ahmed also said that the country’s external debt was USD 101 billion which had not increased since June 2021.

He said it was in contrast to the increase of debt from USD 55 billion in 2015 to USD 101 billion in 2022. He said that the composition of foreign debt had also changed and the short term loans have considerably decreased. PTI SH GSP GSP

Pakistan central bank keeps policy rate at 10.5%, citing elevated core inflation and external balance risks while growth improves. The central bank maintained the policy rate at 10.5 per cent because headline inflation matched expectations but core inflation remained elevated, the real policy rate was assessed as adequately positive to stabilise inflation within the medium term inflation target, and external risks from a widening trade deficit and unchanged current account outlook counseled caution despite an improved growth outlook.